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A VA Construction Loan is a short-term loan that can be used to cover the cost of building a home.

Can You Build a New Home With a VA Loan?

Yes, VA loans can be used to build a home on a piece of land, but some lenders may not offer a VA construction loan. The difference here is the term of the loan. VA Construction loans have a shorter term length than a typical VA loan. Additionally, VA construction loans only pay for the completed portion of the home that is being built.

What Lenders Issue a VA Construction Loan?

Finding a lender willing to issue a VA construction loan can be difficult, as upfront construction costs deter lenders. Even if borrowers find a lender who will issue a VA construction loan, it may not come with that important no-money-down feature that makes VA loans so attractive. Talk with a VA lender before getting a construction loan.

VA Construction Loan Requirements

  1. Obtain your Certificate of Eligibility (COE).
  2. Find a lender and get pre-approved for the VA construction loan.
  3. Find a VA registered builder: builders must submit a one-year warranty to the lender and have a valid VA builder ID during said construction.
  4. Get the property appraised.
  5. Close on the VA Construction Loan.
  6. Pass VA inspection.
  7. If the VA Construction Loan does not include the permanent loan option, refinance into a VA home loan.

Can I Turn my Construction Loan into a Permanent VA Home Loan?

Yes. Once the construction ends, the borrower can refinance the construction loan into a permanent VA home loan. Select VA lenders can turn those interim construction loans into VA home loans. A lender may handle this like a refinance or a new purchase loan. Borrowers are subject to all VA and lender standards regarding credit score, debt-to-income ratio, income, employment and more.

It's a good idea to get the ball rolling toward your permanent home financing long before the builder finishes building your dream home. A construction loan is a short-term loan by design, and you will need to have the long-term financing ready to go.

What if I Can't Obtain a VA Construction Loan?

Because many lenders do not make a no-money-down VA construction loan, many borrowers obtain short-term construction loans through local builders or lenders.

You can ask builders and lenders if they can make any exceptions for military families working toward home construction. Remember that each business is vying for borrowers to be their customers. That puts borrowers in the driver's seat, so do not rush into a construction loan agreement. Be diligent about researching businesses with customer review websites and other organizations.

The main issue with resorting to a local builder or lender for a short-term loan is that they may require a down payment. Closing costs and other expenses could arise, so it's important that you compare every construction loan option.

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