As a way of saying thank you for serving our country, the Department of Veterans Affairs and participating lenders offer loans specifically for qualified veterans who want to own real estate. Veterans looking to purchase a home may think that they are limited to already-built residential properties, but that’s not the case! Thanks to the VA Construction Loan program, those who are eligible can buy a lot or land and custom-build their very own home! This loan allows veterans to finance both the property and the construction for zero down payment, and this loan has tons of other benefits as well. Keep on reading to see if a VA Construction Loan is right for you!
Now is the Perfect Time to get a VA Construction Loan!
The real estate market has been tremendously competitive as people try and move out of the city and into suburban and rural environments. This can make finding an affordable home difficult, and once you do, you need to act fast! But with a VA Construction Loan, you will have many more options, as you will be able to consider properties that don’t have a house built yet. And you can include your input in your house’s design, truly making it into a dream home. Houses can be either stick-built (or “traditionally” built), modular, or manufactured (both modular and manufactured are built off-site and then shipped to the property location), giving borrowers lots of choices to personalize their property!
While this program has been around for a while, another reason why now is the perfect time to get a VA Construction Loan is that in January of 2020, the VA got rid of the maximum lending limits caps! This means that you do not have to worry about the maximum loan limits that may be in effect in the property’s county. Many other loan types (including FHA, Fannie Mae, and Freddie Mac conventional loans) are limited by the lending caps of the property location. However, it should be noted that lenders who offer these “Jumbo” construction loans will require a down payment (usually 5% or more). Furthermore, while the Department of Veterans Affairs does not impose loan limits, lenders can choose to impose “overlays,” which are maximum loan amounts. These overlays tend to range from $750,000 to $1,500,000.
Any veteran who qualifies for a $0 Down Loan will also qualify for a $0 Down Construction Loan. This means you will need to be a veteran or the spouse of a veteran and get a Certificate of Eligibility (or COE). Furthermore, you will need to be able to afford and qualify for the loan – usually an underwriter will determine this. Typically, the highest debt-to-income ratio allowed is 41% (however, in certain cases, a Residual Income calculation may be used instead if the borrower’s DTI is too high). And of course, as with all loans, it is more favorable to have a good credit score, more income, and consistent employment history. To discuss specific requirements, be sure to contact a VA approved lender!
Pay Only After Construction
Even if the VA Construction loan interests you, you might be worried about having to make interest payments while also still having your current rent or mortgage payments. Thankfully, with the VA Construction Loan, you do not have to make any interest payments during the construction period! Instead, the builder will pay for these interest expenses because they are factored into their contract. You will not be obligated to make interest payments until the start of the new month, one month after construction has been completed. (So, for example, if construction is completed on September 20, the first payment wouldn’t be due until November 1.) This helps to keep the VA Construction Loan affordable and allows the veteran to make their current payments until they are able to move in to their new home!
Benefits for Veterans with Service-Related Disabilities
While VA Construction Loans don’t require a down payment, they often have a funding fee, paid to the VA in order to guarantee 25% of the loan. This is 2.3% of the loan amount for veterans using their VA Construction Loan benefit for the first time, and 3.6% for each use after that. However, for veterans with service-related disabilities, this fee is waived, but the VA still guarantees the loan. Veterans with disabilities may be doubly interested in utilizing the VA Construction Loan as it can allow them to ensure the house is built with adaptations to allow them to move and live more comfortably and independently.
Where Can I Get More Info?
If you’re interested in a VA Construction Loan or want to learn more about your options, multiple resources exist to help. Warehouseline.com specializes in funding VA One-Time Close Construction to Permanent loans, and encourages veterans to contact them to help them find approved VA construction lenders. Onetimeclose.com also helps veterans connect with lenders and learn more about the $0 Down VA Construction program. The VA’s website has lots of information and resources for veterans to consider, including options to speak with someone for support or information. You can also check out the following articles about VA loans from RateZip!
Why every Veteran should use a VA Loan to Buy a Home