Ready to build your dream home? If youâ€™re an active-duty service member or veteran of the U.S. Armed Forces, you may not realize that the Veterans Administration (VA) backs construction loans to help offset the costs of turning that house in your head into a reality.
Jesse Gonzalez, broker of record at North Bay Capital in Santa Rosa, California, and member of the Veterans Association of Real Estate Professionals (VAREP), said these loans are relatively new and not well-known, even among active-duty service members. â€śThere are not a lot of mortgage professionals doing these,â€ť Gonzalez said. â€śMy competition is sparse in this area because most mortgage professionals simply donâ€™t understand it.â€ť
But experts like Gonzalez say a VA construction loan is a fantastic resource for folks who want to build a home. Unlike conventional construction loans, VA construction loans offer a host of special benefits â€” from the possibility of 100% financing without a down payment to locked-in interest rates that wonâ€™t change over the years of the loan.
So, what do you need to know to take advantage of this resource? Do you need a special credit score or an approved contractor to build your new home? Letâ€™s take a look at what you might need to do to get some help from the VA to build that house.
Much like VA loans designed to purchase an existing home, VA construction loans carry a number of eligibility criteria that lenders will look for before offering you this special type of mortgage.
Before you call a private lender (more on that later), take a look at some of the qualifications youâ€™ll likely need to get one of these loans:
Even if you and your home plans fit the bill for a VA construction loan, you should be prepared to jump through a number of hoops once you actually start construction.
Although the VA doesnâ€™t put restrictions on the overall design of the house â€” whether you build a cute bungalow or a sprawling McMansion is up to you â€” if youâ€™re going to build with a VA-backed loan footing the bill, your property will have to meet several requirements regarding usage, utilities and the like.
Some of the major things to be aware of include
If youâ€™re interested in applying for a VA construction loan, a private lender may be able to help you, and some of the process will be similar to that of a conventional loan application.
Why would you want to get a VA construction loan, if youâ€™re eligible, when you could just buy an existing home?
According to Evan Wade, co-founder and partner of Philadelphia Mortgage Brokers in Philadelphia and member of the Association of Independent Mortgage Experts (AIME), VA construction loans are especially popular in areas with limited housing inventory.
â€śThe VA does not wish to restrict the type of homes a veteran is able to buy,â€ť Wade explained. â€śIf a veteran wishes to construct a brand new house while still being able to utilize their hard-earned benefits, they should definitely be able to do so.â€ť
The benefits donâ€™t stop there. A construction loan could allow the freedom to design a home that truly suits your and your familyâ€™s needs, instead of making do with a home thatâ€™s simply â€śalmost right.â€ť Here are some other benefits for which you might qualify with a VA construction loan:
There are, of course, some aspects of a VA construction loan that might not make it a perfect fit. Before you approach a lender, you might want to take the following into consideration:
It can be tough to find a lender who is versed in VA construction loans; however, they are out there. Asking friends or family who are also in the military world for word-of-mouth recommendations can be a great way to find the perfect lender who can walk you through the process.
VAREP also offers a â€śfind a memberâ€ť option on its website to assist in locating military-friendly mortgage professionals located around the U.S.
When it comes to building a home, the VA construction loan is a valuable option for would-be homeowners who qualify. If youâ€™re not sure one is right for you, you might also want to consider a traditional construction loan.