VA Construction Loan Guide | Requirements & Process 2022

VA Construction Loan Guide | Requirements & Process 2022
Written by Publishing Team

Can I build a house without money?

Are you looking to build a new home from the ground up? Are you an active duty member or veteran?

If so, you may qualify for a VA construction loan, which is sometimes called a construction loan to permanent loan.

This loan can finance everything from the purchase of land and construction to the permanent mortgage for the final residence. And, as with all VA loans, there is no down payment required for eligible borrowers.

catch? It can be difficult to find VA construction loan lenders. So you may need to do some digging.

Learn more about what’s required, how to qualify, and whether a VA new construction loan is right for you.

In this article (go to…)

What is a VA construction loan?

If you are an active duty or veteran with a qualifying service history — or a surviving spouse — you may be able to take advantage of the generous loan program offered by the US Department of Veterans Affairs: the VA Construction Loan.

For qualified borrowers, a VA construction loan can simplify the process of building your dream home.

“The benefits of a VA construction loan include no down payment required for fully due veterans, a minimum credit score of 640, and no private mortgage insurance required in a one-time VA closing, which is completed in one loan versus up to three for a conventional loan,” he says. Richie Duncan, division director at

A flexible VA construction loan. Funding can be used to:

  1. The total cost of buying a plot of land and building a house on it and financing the permanent mortgage on the house once it is finished. With this option, there is only one underwriting process, one valuation, one set of closing costs, and one closing. This is known as a one-time VA near-construction loan
  2. The combined costs of buying land and building a house on it, after which your construction loan can be refinanced into a separate loan VA . Permanent Mortgage Loan. With this option, a single appraisal and closing is included in the short-term loan, but separate underwriting, evaluation and closing costs are required for the VA permanent mortgage loan
  3. Build the house on land you already own or finance separately, after which your construction loan can be refinanced into a separate permanent mortgage. As with the second option, there is one valuation and closing for a VA construction loan, but a separate underwriting process, valuation, fees, and closing is required for a VA permanent mortgage loan.

The only problem is, finding VA construction loan lenders is difficult. If you cannot find a willing lender, you may have to pursue alternative financing options instead.

Check your eligibility for a construction loan (January 5, 2022)

VA construction loan process

The VA construction loan process involves a series of steps, according to Julie Aragon, CEO and founder of Julie Aragon Lending:

  1. Your eligibility for VA benefits is verified by obtaining a Certificate of Eligibility (COE) and providing personal financial information to the lender. Prepare to collect and review copies of current credit reports, proof of income, current bank and investment account statements, and other financial documents the lender may request
  2. Find a lender that offers VA building loans and get pre-approved. Note that VA does not lend directly, so you will have to look for a private lender that offers this program
  3. Choose a properly licensed and VA approved builder/general contractor and submit your home building plans to the lender
  4. Completion of property appraisal
  5. Inspect the completed home against VA standards and complete the closing process
  6. If your VA construction loan does not include the perpetual mortgage loan component, you will need to refinance into a VA home loan once the home is built.

“Note that, for VA construction loans, money is disbursed to pay for the home’s construction in a series of instalments, or ‘withdrawals’, at certain stages as construction progresses,” Aragon explains.

VA construction loan requirements

Several rules apply to victim-assisted construction loans, including guidelines for the borrower, contractor, and home being built.

Borrower requirements

First, you need a good credit score.

“While VA guidelines do not specify that borrowers have a minimum credit score or meet other financial criteria, most actual VA loan lenders will. To improve your chances of eligibility, aim for a minimum credit score in the 620 to 640 range,” Aragon recommends.

In addition:

  • The debt-to-income ratio (DTI) must be less than 41%.
  • You must meet the income requirements based on the size of your family
  • You must not have been bankrupt in the past two years
  • You need a stable income and work; You should be able to afford the mortgage payments comfortably

Prepare for a two-year income verification when you apply for a VA construction loan.

For W-2 borrowers, collect the last 60 days of pay slips, the last two years of W-2s, and the last annual tax returns. Self-employed borrowers must collect the past two years of complete personal and business tax returns as well as all relevant tax schedules.

Ownership Requirements

A home being built needs to meet certain requirements as well, including:

  • The completed house should be owned by him as your primary residence
  • The types of homes eligible for construction include single-family homes, condominiums in approved projects or legal stages, and manufactured homes
  • The total amount of the construction loan/permanent mortgage must not exceed $ For most US counties in 2022
  • The property must be located in a VA approved area and must not exceed the maximum land restriction, such as 10 acres
  • The property must be inspected by a specialist approved by the Department of Veterans Affairs

“Keep in mind that relevant local regulations will determine the ownership requirements for your construction loan,” notes Dan Holtz, co-founder and CEO of Sovereign Lending Group.

Lender/Contractor Requirements

Finally, there are restrictions about which lender and contractor you can work with.

  • You must choose a VA approved mortgage lender that participates in the VA Construction Loan Program
  • The contractors you have selected must be approved by the VA. “They have to have the required license, liability insurance, and at least two years of home building experience,” Duncan says.
  • You should get a new build guarantee from the builder

Finally, any money left after construction has ended should be used directly on your loan principal. You cannot get cashback from this type of loan.

VA construction loan lenders

Be aware: It can be difficult to find VA building loans or lenders that offer these loans.

Many lenders offer standard VA home loans to those who purchase existing homes. But few construction loans are provided by victim assistance,” warns Aragon.

“The Department of Veterans Affairs has traditionally provided limited guidance with regard to construction loans, which translates into widespread uncertainty and unfamiliarity with lender guidelines and requirements,” she continued.

The good news is that you can visit the VA website to search for VA approved lenders. However, not all VA lenders offer VA construction loans. So be prepared to contact several companies until you find one that does.

VA construction loan interest rates

Another caveat is that you will likely pay a higher interest rate for a VA construction loan than you would for a standard VA mortgage loan.

“This is because the participating lenders see home building loans as somewhat of a risk,” Aragon explains.

Interest rates on construction loans are usually at least 1% higher than standard mortgage rates.

“Unlike a mortgage on an existing home, there is no completed property that acts as collateral. So expect the interest rate to be a little higher – usually 1% or more, although the rate offered to you may vary.”

Another reason your rate might be higher? “Long-term interest rate stabilization is needed, which could lead to a higher rate of interest,” Holtz says.

Other construction financing options

If you don’t qualify for a VA construction loan or can’t find a participating lender, you’re out of luck. There are other financing options you can seek for your new home.

For example, you can take out a separate loan to purchase land and a conventional building loan to pay construction expenses, followed by a separate VA home loan to finance final permanent residence.

“The drawback with this approach is that you will have separate guarantees, valuations, closings and fees, and your non-VA construction loan will likely require a down payment,” Duncan says.

Or you can pursue an FHA construction loan for a permanent loan, which combines lot purchase, construction costs, and permanent mortgage financing on the completed home into one loan with one appraisal and one closing. However, you will likely have to cut at least 3.5% to 10% and pay your private mortgage insurance up front and on an annual basis.

Alternatively, if you choose a USDA-approved rural area to build a home in, you may qualify for a USDA construction-to-permanent loan. These also do not require a down payment and combine lot purchase, construction costs and a permanent mortgage loan into one loan product.

Finally, instead of building a new home, homebuyers may consider purchasing an overhead stabilizer.

You can pay for the home and rehab associated with a VA renewal loan or other home improvement loan.

Check your eligibility for a construction loan (January 5, 2022)

Conclusion: check all your options

Whichever route you choose, be sure to explore all of your options.

Although construction loans are difficult to get, you still want to shop around and make sure you get the best type of loan and interest rate available to you.

Show me today’s rates (5th Jan 2022)

The information on the Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed here are those of the author and do not reflect the policy or position of Full Beaker, its officers, parents, or affiliates.

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