How to Apply for a VA Construction Loan

Guide to VA Home Loans-Sprint Funding

How to Apply for a VA Construction Loan

Benefits of Construction Loans

VA construction loans do not require mortgage insurance. Mortgage insurance is typically required on conventional mortgages when the borrower puts less than 20% down on the property. 

Borrowers may be able to finance up to 100% of the property’s value without having to pay for mortgage insurance.

In addition to saving money on mortgage insurance, VA construction loans typically offer competitive interest rates and flexible payment terms

This makes them an attractive financing option for those looking to build or renovate a home. The interest rate on a VA construction loan depends on several factors: credit score, payment history, and debt-to-income ratio.

With a VA construction loan, borrowers can finance up to 100% of the property’s value. This means they may not need to make a down payment or provide additional cash for the project. 

In addition, VA construction loans are backed by the federal government, which means they are generally considered less risky than traditional mortgage loans. This can make them an attractive option for lenders as well as borrowers.

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VA Construction Loan Eligibility Overview: Confirming Eligibility and Entitlement

Eligibility requirements for a VA construction loan are quite specific, and it’s important to understand them before applying. 

The requirements below are as follows:

  • The applicant is an active duty service member, or a veteran who was honorably discharged (no recorded offenses).
  • Must have had 90 successive days of active duty if a war is going on, or 181 days of active duty if it is a period or harmony.
  • The applicant has done over six years of active service for the National Guard or the Selected Reserve.
  • The applicant is the spouse of a service member who was killed while in active service or duty.
  • If an applicant is qualified, they must show lenders the Certificate of Eligibility that they acquired from the VA department.
  • A certificate may be requested through the Department of Veteran Affairs’ website. There are also options of acquiring a certificate through mail or even through the lenders themselves.

Gather Necessary Documents

Make sure all necessary documents are ready before submitting your application.

Confirming eligibility involves obtaining a Certificate of Eligibility (COE) from the VA lender. This certificate verifies your military service and entitlement to a VA home loan. You need to provide proof of your military service, such as your DD-214 form.

In addition to income and credit score requirements, borrowers must have enough cash reserves to cover unexpected expenses during the construction process. These reserves can include savings accounts, retirement accounts, or other assets that can be easily liquidated if needed.

Credit Score

While there is no minimum credit score requirement set by the VA, most lenders require a credit score of at least 620. However, some lenders may offer loans to borrowers with lower credit scores.

Debt-to-Income Ratio (DTI)

DTI refers to your monthly debt payments as a percentage of your gross monthly income. To qualify for a VA construction loan, your DTI should not exceed 41%. This means that if your gross monthly income is $5,000 per month and your total monthly debt payments are $2,000 per month ($1,500 mortgage payment plus $500 in other debts), then your DTI would be 40%.

Find a Lender

Look for lenders who offer VA construction loans and have experience in handling such loans. Let Sprint Funding help you get started.

Submit Your Application

Once all necessary documents are gathered and lender is chosen, submit your application for a VA construction loan. 

The VA funding fee is another factor to consider when applying for a VA construction loan. This fee is typically added to the loan amount and can vary based on factors such as the borrower’s military status and down payment amount. 

Developing Project Plans

Developing detailed plans for your construction project is crucial when applying for a VA construction loan. These plans should include architectural drawings that show the layout of the property and all proposed changes or additions. 

Additionally, you will need to provide cost estimates that detail the materials and labor required for the project. 

Submitting Project Plans

Once you have developed your project plans, they must be submitted to the VA for review and approval before applying for a construction loan. The VA will review your plans to ensure that they comply with all relevant regulations and codes, including zoning laws, building codes, and environmental regulations.

Approval Process

The VA’s approval process for construction projects typically takes 45-60 days. During this time, the VA will review your project plans and ensure that they comply with all relevant regulations and codes

Contractor Requirements

When selecting a contractor for your construction project, it is essential to ensure that they meet all VA requirements. This includes licensing, insurance, and experience in working on similar projects. Additionally, contractors must comply with all relevant regulations and codes throughout the construction process.

Compliance with Regulations

Ensuring compliance with all relevant regulations and codes is critical when applying for a VA construction loan. To avoid issues, it is essential to work closely with an experienced contractor who understands these regulations and can help ensure compliance throughout the construction process.

VA Construction Loan vs Traditional Construction Loan: Which One is Right for You?

VA construction loans are specifically designed for veterans and active-duty military members who want to build their own homes. 

Unlike traditional construction loans, VA construction loans offer several benefits, such as no down payment requirement and no private mortgage insurance (PMI). 

VA loans also have more lenient credit score requirements compared to conventional construction loans, making them more accessible to borrowers with less-than-perfect credit.

This can be particularly helpful for those who may not have significant savings or equity in their current home. With a VA loan, you can finance up to 100% of the cost of your new home.

VA construction loans also have more lenient credit score requirements compared to conventional construction loans 

However, it’s important to note that while VA loans may be more accessible for those with lower credit scores, they still require applicants to meet certain financial criteria.

For example, you’ll need to show proof of income and demonstrate that you’re able to afford the monthly payments on your new home.

On the other hand, traditional construction loans may offer more flexibility in terms of loan amounts and repayment terms. With a conventional construction loan, you can typically borrow more money than you could with a VA loan. Additionally, you may have more options when it comes to choosing your lender and builder.

However, traditional construction loans often require larger down payments and may come with higher interest rates compared to VA loans. They may also require PMI if you put less than 20% down on the home.

Ultimately, whether a VA construction loan or a traditional construction loan is right for you will depend on your individual circumstances. If you’re an eligible veteran or military member who wants to build their dream home without breaking the bank, then a VA construction loan may be the best option for you. 

However, if you have significant savings or equity in your current home and want more flexibility in terms of lenders and builders, then a traditional construction loan may be worth considering.

Understanding VA Appraisals for Your Construction Loan

VA Appraisals are an essential part of the VA construction loan process. They are required to ensure that the property meets the VA’s minimum property requirements and to determine the fair market value of the property. In this section, we will discuss what VA appraisals entail and how they impact your construction loan.

What is a VA Appraisal?

A VA appraisal is an assessment of a property’s value and condition conducted by a licensed VA appraiser. 

The primary purpose of a VA appraisal is to determine if the property meets the minimum property requirements set forth by the Department of Veterans Affairs (VA). 

These requirements are in place to protect veterans from purchasing properties that are not safe, structurally sound, or sanitary.

The VA appraiser will inspect both the interior and exterior of the property to ensure it meets these minimum standards. 

This includes checking for things like adequate heating and cooling systems, proper ventilation, functioning plumbing and electrical systems, and no evidence of pest infestations or hazardous materials.

In addition to assessing whether or not a property meets these standards, the appraiser will also consider other factors when determining its value. 

These factors include location, size, condition, comparable sales in the area, and any unique features that may add value to the property.

How Does a VA Appraisal Impact Your Construction Loan?

The appraised value of your property plays a crucial role in determining how much you can borrow through your construction loan. 

The maximum loan amount that can be approved is based on a percentage of the appraised value of your home.

If you’re applying for a construction loan with a lender who participates in the VA Home Loan program, they’ll use what’s known as “the lesser of” rule when calculating your maximum loan amount. This means that they’ll take either:

  • The appraised value
  • The purchase price (if you’re buying land at closing)
  • The cost of construction plus any allowable closing costs

Whichever of these three amounts is the least will be used to calculate your maximum loan amount.

It’s important to remember that VA appraisals are in place to protect veterans from purchasing properties that are not safe or structurally sound. While it may be frustrating to have your loan amount reduced due to a low appraisal, it’s ultimately in your best interest as a homeowner.

What Happens During a VA Appraisal?

During a VA appraisal, the appraiser will conduct an inspection of both the interior and exterior of your property. They’ll take measurements and photographs of each room and note any deficiencies or issues that need addressing.

The appraiser will also assess other factors that could impact the value of your property. For example, they’ll consider things like:

  • The location of your property
  • The size of your property
  • The condition of your property
  • Any unique features that add value (such as a pool or fireplace)
  • Comparable sales in the area

Once they’ve completed their inspection, they’ll compile all this information into an appraisal report. This report will include:

  • A detailed description of the property
  • An assessment of its overall condition
  • A list of any repairs needed to meet minimum standards
  • A valuation based on comparable sales in the area

The appraisal report is then sent back to both you and your lender. If there are any issues noted in the report that need addressing before closing on your construction loan, you’ll need to work with either the seller (if you’re buying land) or contractor (if you’re building a new home) to make any necessary repairs.

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Final Inspection and One-Time Close Loan for VA Construction Loans

Final inspection is a critical step in the VA construction loan process, as it ensures that the property meets all the necessary requirements and standards before closing. The final inspection is usually conducted by a VA-approved inspector who will check if the property meets all the minimum property requirements (MPRs) set by the Department of Veterans Affairs.

The MPRs are designed to ensure that the property is safe, structurally sound, and sanitary. Some of the things that an inspector will look for during a final inspection include:

  • Proper grading and drainage around the foundation
  • No evidence of termite damage or infestation
  • Working electrical, plumbing, heating, and cooling systems
  • Adequate insulation and ventilation
  • No lead-based paint hazards
  • A clear pest inspection report

If any issues are found during the final inspection, they must be addressed before closing on the loan. This can delay closing or even cause it to fall through altogether if significant issues are discovered.

One-time close loans are a popular option for VA construction loans because they combine construction and permanent financing into a single loan with only one set of closing costs. This means that borrowers can avoid having to go through two separate loan processes and pay two sets of fees.

With a one-time close loan, borrowers can lock in their interest rate at the beginning of construction, which protects them from any interest rate increases during construction. Once construction is complete, the loan automatically converts to permanent financing without requiring another appraisal or underwriting process.

One-time close loans also offer more flexibility including any required down payment and funding fee. This can be particularly helpful for veterans who may not have significant savings or equity built up in their current home.

Another benefit of using a one-time close loan for VA construction is that borrowers can avoid having to pay private mortgage insurance (PMI). PMI is typically required for conventional loans with less than 20% down payment, but VA loans do not require PMI. This can save borrowers hundreds of dollars per month in additional fees.

In addition to the benefits mentioned above, one-time close loans also offer a streamlined process that can save borrowers time and hassle. Since everything is handled through one loan and one set of closing costs, there is less paperwork and fewer steps involved.

However, it’s important to note that not all lenders offer one-time close loans for VA construction. Borrowers should do their research and shop around to find a lender who offers this type of loan and has experience working with VA construction projects.


Applying for a VA Construction Loan Made Easy

Once your project is complete, a final inspection will be conducted before closing on your one-time close permanent mortgage. At this point, you’ll have successfully applied for and received approval for your VA home construction loan.

Sprint Funding is here to y assist you in obtaining VA loan rates. Our experienced team of loan specialists is ready to help you secure the home of your dreams.

Apply today!

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