VA Construction Loans

The Agreement to Purchase the Home

When you have decided to buy, the builder or seller will usually require a cash deposit (earnest money) as evidence that you really intend to go through with the deal. Make sure that when you make a deposit, you get a signed agreement from the seller to refund your deposit if you are unable to obtain VA financing, or if the builder and/or seller fails to go through with his or her part of the agreement. You may also expect to be requested to agree that if you fail to go through with your part of the agreement, you will forfeit your deposit. These clauses are customary and usual in sales agreements. Be sure that you know the person to whom you are making the payment is reliable. Some veterans have lost their deposits to persons who were dishonest or went bankrupt, and VA can usually do little to help in these cases.

A contract consists of an offer and an acceptance. Generally, the purchaser initiates the contract by signing an offer to purchase on a form entitled "Contract of sale," "Purchase Agreement," "Deposit Receipt," etc., which is often supplied by the seller's agent. This document, when completed with all essential terms and signed by the purchaser, is a formal offer by the purchaser to buy the property on the stated terms. A contract occurs when the seller accepts the offer without qualifications or change by signing the document prior to withdrawal of the offer by the prospective purchaser. The contract customarily provides for the purchaser to deposit a sum to be applied to the closing costs or purchase price. A proper sales contract should contain the provisions listed below, but bear in mind that this list is by no means complete. Bear in mind also that the sales contract is a legal document containing legal terms which are hard for the average person to understand. Make sure you do understand everything that is in the contract before you sign. Any of its provisions may be vital to your interests.

The best way to protect yourself is to get competent advice from a lawyer in respect to the legal details and the requirements in your area. VA is not authorized to perform this service for veterans.

Remember, when the settlement date arrives, you are committed to the purchase of the property. Thus the time to decide the terms of sale, raise questions, and establish fair fees is not at time of settlement, but earlier, when you negotiate with the seller and providers of settlement services. By the time of settlement, any changes in settlement costs and purchase terms may be difficult to negotiate.

Your sales contract should cover the following points:

The sales contract should state the amount of cash payment which will be required from you and the manner of financing the balance. Usually the contract will require that you arrange to obtain the loan for the balance due. It should also provide that any cash deposit you make will be refunded to you if you cannot obtain a VA guaranteed loan within a stated period of time.
The sales contract should include a provision concerning anticipated closing costs and prepaid items with an understanding as to who is to pay each. This allows you to anticipate the need for cash at closing and prevent disputes.
The contract should require the seller to transfer the property to you on or before an agreed date. The contract should also specify your right to withdraw and get your deposit back if the Property is not transferred on time.
In the case of new construction, the contract should provide that the builder will complete the home in accordance with definite plans and specifications by a specified date or within a reasonable time thereafter. The plans and specifications describe the type of house that will be built, the dimensions, the type of material which will be used, and other details.
Before you sign the contract, you should review the plans and specifications to which the contract refers, or have someone do it for you. The average person is not ordinarily able to understand a set of plans and specifications or to determine their adequacy, or to judge later whether the actual construction is being done in accordance with those plans and specifications. Before you sign the contract, you would do well to have some trained person review the plans and specifications for you. If copies have been filed with VA, VA will do its best to see that the actual construction conforms to your plans and specifications, but VA does not actually supervise the construction for you. You will commonly find that either you or the builder will want to make a change from the original plans and specifications as to one detail or another as the building progresses. Those things are matters to be arranged between the builder and you. Usually, VA will require that changes be submitted to VA for approval, but that approval concerns only whether the change conforms to VA construction requirements or requires VA to adjust the valuation it has placed on the property.
If you do not get a copy of the plans and specifications before you sign the contract, you should make sure that you will have the right to look them over again at any time at a designated place. Normally, the builder will cooperate in allowing you to examine the plans and specifications and furnish you a copy. If the contract identifies the plans and specifications as those filed with VA.VA retains plans and specifications for a limited period of time and, upon request, will give you access to them if available.
The contract should contain a provision stating who will be responsible for the property from the date of the contract to the date the house is transferred to you. The builder or seller usually takes this responsibility.
The construction warrranty required to be given to veterans acquiring new homes with VA-guaranteed financing is discussed later. If the builder is to assume responsibility for the condition of the property after it is transferred to you, other than those covered by a construction warranty, it is desirable to specify the builder's responsibilities in the purchase contract or in a separate written agreement executed at the same time. This is discussed further later.
You should not sign any contract containing a so-called "safety" or "escape" clause which enables the builder or seller to back out of the contract at any time unless you also have similar rights. However, it is most advisable that your contract have a provision which will permit you to withdraw from the contract, if you so desire, with no penalty to you if the sales price is greater than the reasonable value of the property as established by VA and the contract is signed before you receive notice of VA's reasonable value, or if you should be unable to obtain a VA loan for the amount stipulated.
The contract should provide for appropriate identification of any easily removable and/or built-in equipment, appliances, or devices which are to be included with the property.

It should be emphasized again that these are just some of the things that a prospective homeowner should be careful about in signing a sales contract. Legal documents are often complicated and there is no substitute for competent advice from a lawyer. You may save yourself a lot of future complications if you get such advice.