A Comprehensive Guide to Building Your Home with VA Construction Loan

Financing a home construction with personal savings is next to impossible. That’s especially true if you only rely on a single income stream.  

It may take some time to build enough savings for your first real estate investment. And considering the ever-rising inflation rates, that might well be several years.  

For most people, taking out a mortgage is always the most viable option.  

A VA construction loan is one of the many credit facilities you can explore to finance your home construction project. You only need to meet the eligibility criteria, get preapproved by the identified lender, and you’re good to go.  

In this article, we’ll delve into the significance of VA loans for first-time homebuilders. Read on and be informed. 

What Is A VA Construction Loan? 

A VA construction loan is a short-term real estate loan guaranteed by the United States Department of Veteran Affairs, allowing borrowers to acquire a piece of land and/or construct their primary residence.  

Most VA construction loans are typically available to veterans seeking financing to build their custom homes. However, you could also seek out a VA construction loan to build a garage, provided that the garage is part of your primary residence.  

What Is A VA Construction Loan Used For? 

VA construction loans mostly go into financing two things – purchasing a parcel of land or building a custom residential property. Understanding the usage limitations is important before applying for this real estate loan.  

One of the frequently asked questions by many would-be VA construction loanees is – can you add renovation costs to conventional mortgage?  

Generally, you cannot channel the funds from a regular VA construction loan into property repairs and renovations. If you plan to undertake certain repairs in your home, your best bet would be to take out a VA rehab loan.  

In the latter scenario, you’ll simply need to establish whether you qualify for the funding and identify suitable VA renovation loan lenders. 

Eligibility Criteria for VA Construction Loans 

As with most loans, the first step in acquiring a VA construction loan is to understand if you’re eligible. Eligibility (or the lack thereof) determines whether your VA loan application will be granted or denied.  

The most outstanding eligibility criterion is that you must have been a veteran with a significant period served in active duty.  

Veterans who served between 1990 and now must meet the following criteria; 

• Have served for at least 24 continuous months  
• Have spent at least 90 days of your service on active duty 
• Are retired or was discharged from the force due to a service-related disability 

The eligibility criteria may differ slightly for those who served in the army before 1990. 

In addition, you must prove that you intend to use the VA construction loan for the officially approved purposes – buying land or constructing your main residence. 

Requirements for Taking out A VA Construction Loan 

After determining that you’re eligible for a VA construction loan, the next step is to understand what you need to apply for the funding.  

This basically entails submitting your construction plans to the lender for approval. You’ll then need to provide the usual loan application documentation, including government-issued identity cards, bank account statements, debt-to-income ratio (DTR), and a statement of your credit score.  

As already mentioned, be sure you understand how to use the VA construction loan to finance your building or land acquisition project. 

The Process of Applying For A VA Construction Loan 

1. Obtain a Certificate of Eligibility 

Simply knowing that you’re eligible for a VA construction loan isn’t enough. You must prove your eligibility status by obtaining a certificate of eligibility (COE).  

The easiest way to apply for a COE is through the VA eBenefits’ online portal. Be sure to produce your DD214 discharge papers if you’re a veteran or a duly signed statement of service if you’re an active-duty applicant. 

2. Find a Lender 

The next step in applying for a VA construction loan is to find a suitable lender.  

Start by comparing multiple prospective lenders against different parameters, such as their average VA lending amount, interest rates, and repayment period.  

It’s also prudent to prioritize VA-approved lenders.  

3. Find a Builder 

If you intend to build a home instead of buying land, you’ll need to find a professional home builder before moving forward.  

Insist on a VA-approved builder. Such contractors must be registered with the Department of Veteran Affairs and possess a VA Builder ID.  

4. Get Preapproved 

Preapproval entails getting evaluated to determine if you qualify for the VA construction loan you’re applying for. Such assessments may be conducted by the identified lender or other credit professionals.  

Factors like your credit score, employment status, DTR, and the amount of funding you require will all come into play.  

You’ll also need the following documents during the preapproval stage; 

• Government-issued identification cards, such as driver’s license 
• Bank statements  
• Statement from any of your retirement or investment account 
• Federal tax returns for the past two years 
• COE 
• Pay stubs 
• Purchase agreement for the piece of land (if you’re yet to buy the land) 
• Deed to the land, complete with survey maps (if you already own the land) 
• Construction contract duly signed with the builder 

If you’re a veteran, some lenders may also interrogate the reasons for your discharge from the force.  

5. Seek A VA Appraisal 

Your lender will require a VA appraisal that considers the property’s specifications and build plans. Shortly after receiving this appraisal, the VA may issue you a formal Notice of Value describing the property’s fair market value.  

Perhaps this is also where you’d ask – can you get a mortgage for more than the purchase price for renovations?  

It’s possible to be approved for a VA mortgage worth more than your home’s price. That’s regardless of whether you’re seeking regular VA construction funding or a renovation loan.  

For instance, a lender may approve you for a higher loan if a valuation report indicates the property’s market value may rise significantly after the purchase. 

6. Close On the Loan 

This is the final step in applying for a VA construction loan or any other investment property renovation loan, for that matter.  

Note that it may take up to 60 days for a lender to process your VA construction loan application. The funds may also be disbursed in installments based on the project’s timelines. 

Summary 

There goes our comprehensive guide to obtaining a VA construction loan. Hopefully, this article was able to inform you of the requirements for applying for a VA construction loan while also debunking common VA loan myths.