Did you know eligible veterans, active-duty service members, and select military spouses can get a VA loan to buy a lot, finance new construction, and turn it into a permanent loan in a single transaction?
Yes, it’s true.
It’s called a VA One-Time Close Construction Loan.
This type of VA loan home loan is tailor-made to simplify the home-building process for eligible military and veterans on their primary residence by combining the lot purchase, financing for construction, and permanent mortgage into one single transaction.
District Lending’s guide explains the nuances of the VA loan construction program, how it works, its benefits, and why it may be the ideal solution for those looking to simplify the new home construction process.
Helpful Resources and Source Documents:
Table of Contents
What is a VA One Time Close Construction Loan?
A VA One-Time Close Construction Loan allows eligible veterans, service members, and some military spouses to finance the lot, construction of a home, and its permanent mortgage with a single loan.
This type of loan simplifies the process by combining two traditionally separate loans (lot and construction and permanent mortgage) into one transaction, meaning there’s only one set of closing costs and the borrower only has to go through the VA loan approval process one-time.
The main benefits of a one-time close construction loan through the VA are: No down payment, no payments due during construction, and the convenience of one single closing.
VA One Time Close Construction Basics
- Provides lot purchase, construction financing, and a permanent loan in a single VA loan.
- One-time closing process reduces closing costs and paperwork.
- Eligible for various types of housing: one unit stick-built house, new manufactured homes, multi-wide housing, modular homes, planned unit developments (PUDs), and barndominiums.
- Only available for a primary residence.
- Approval for the permanent portion of the loan is obtained before construction begins.
- The construction portion is also underwritten and approved.
- No payments are due during the construction phase.
- Once construction is complete, there is no need for requalification.
- Up to 100% financing is available through VA, with the option to finance the funding fee into the loan (funding fee waiver for disabled veterans with a VA rating of 10% or higher).
- Interest rate is protected during the construction period.
- Offers 15-year and 30-year fixed-term options.
- Requires a minimum qualifying credit score of 620.
Updated VA Construction Loan Eligibility and Program Details
The VA has set specific criteria and updates for those interested in the One-Time Close Construction Loan:
- Eligible Properties: One-unit stick built house, new manufactured double or triple wide housing (single wide are not allowed by VA regulations), modular homes, planned unit developments (PUDs), and barndominium.
- Financial Caps: Up to $250,000 can be disbursed at closing for land acquisition or payoff.
- Building Permits: Must be obtained prior to closing for both site-built and modular homes. For manufactured homes, permits are required prior to closing when the initial disbursement exceeds $75,000.
- Contingency Funds: A minimum 5% contingency of the total construction cost is included in the contract price, except for no-draw manufactured home transactions.
Benefits of the VA One Time Close Construction Loan
- Single Closing: Streamlines the process by combining all financing into one event, significantly reducing the administrative burden and associated costs.
- No Down Payment: Offers significant financial relief, as conventional loans often require substantial down payments which can be prohibitive.
- Rolling Costs into One Loan: This feature simplifies budget management by consolidating all related costs into a single financial package, making it easier to manage and track.
- Interest Rate Lock: Protects against potential rate increases during the construction period, which can sometimes extend for a year or more.
- Reduced Risk: By securing the mortgage upfront, the borrower’s financial status during the construction phase does not impact their mortgage qualification.
- VA Loan Guarantees: These loans come with the backing of the Department of Veterans Affairs, typically resulting in more favorable terms and lower interest rates.
VA Construction Loans Process
- Eligibility Verification: Lenders verify the borrower’s eligibility and entitlement, ensuring compliance with VA standards. This is done by obtaining a copy of your VA Certificate of Eligibility (COE).
- Appraisal: Conducted based on the construction plans and specifications, this appraisal assesses the project’s value and feasibility before construction begins.
- Notice of Value (NOV): The VA issues this document, which provides a value estimate of the completed property based on the appraisal.
- Loan Closing: With all prerequisites met, the loan can close, and construction commences.
- Construction Phase: Funds are disbursed in stages as construction milestones are completed, overseen by both the lender and VA inspectors.
- Final Inspection: A critical step, the final inspection or issuance of a Certificate of Occupancy confirms that the construction meets all specified requirements.
- Loan Conversion: For one-time close loans, the construction loan automatically transitions into a permanent mortgage. For two-time close loans, this stage involves a new closing for the permanent mortgage.
Financial Considerations and Lender Responsibilities
- Interest Rate Management: Interest rates are negotiated at the start and locked in, providing financial stability regardless of market fluctuations.
- Builder and Lender Roles: Builders are responsible for the construction phase’s financial obligations, such as interest payments, while lenders manage loan disbursement and ensure regulatory compliance.
Choosing the Right Lender
Choosing a lender experienced in handling VA construction loans is crucial due to the complexities involved.
Veterans are encouraged to shop around to find lenders who offer the best terms and who demonstrate a thorough understanding of the VA loan process.
District Lending can help you with a one-time close construction loan backed by the VA.
>> Click HERE to get in-touch with us – we answer all inquiries within 2 business hours.
Conclusion
The VA One-Time Close Construction Loan offers a streamlined, efficient path to homeownership for veterans and active service members.
By simplifying the construction loan process, the VA helps reduce the financial and administrative burdens on military families, allowing them to focus more on building their future homes and less on navigating complex financial waters.
This program is not just a financial tool; it’s a bridge to achieving stable, long-term homeownership tailored specifically for the unique needs of the military community.
VA Construction Loans – Frequently Asked Questions (FAQs):
What types of properties qualify for a VA one-time close construction loan?
A one-time close construction loan backed by the VA can be used for: One-unit stick built house, new manufactured double or triple wide housing (single wide are not allowed by VA regulations), modular homes, Planned Unit Developments (PUDs), and Barndominiums.
Is there a minimum credit score?
Yes, most lenders require a minimum credit score of 620.
Can my builder finance construction?
Yes, the builder can finance the construction from his or her own resources.
When do I have to pay the VA funding fee?
The VA funding fee is due at loan closing prior to the start of construction.
Your lender must submit that fee payment to VA within 15 days of loan closing.
Payment is not tied to the start or completion of construction.
Note: You are exempt from paying the funding if you have a VA disability rating of 10% or more.
How is my interest rate set?
Your lender may offer a “ceiling-floor” where the interest rate “floats” during construction.
The agreement must provide that at lock-in, the permanent interest rate will not exceed a specific maximum interest rate while allowing you to lock-in at a lower rate based on market fluctuations.
Interest rates vary from lender to lender.
The rates available will vary based on the specific lender criteria for approving the loan and what the bank or non-bank lender offers, and we strongly encourage all borrowers seeking to acquire a loan and purchase a home to shop around multiple lenders to ensure that they obtain the best mortgage terms available to them.
Note: You must qualify for the mortgage at the maximum rate.
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About the Author
Brian Reese is a senior advisor and co-owner at District Lending. He is one of the world’s leading experts in veteran benefits, having helped millions of veterans secure their financial future since 2013. Brian is the founder VA Claims Insider, an education-based Coaching & Consulting company whose mission is to educate and empower veterans to get the VA disability benefits they’ve earned for their honorable service. A former active-duty air force officer, Brian deployed to Afghanistan in support of Operation Enduring Freedom. He is a distinguished graduate of management of the United States Air Force Academy and earned his MBA as a National Honor Scholar from the Spears School of Business at Oklahoma State University.
In Brian’s Words:
“As a military veteran, I’ve made it my life’s mission to help people live happier and wealthier lives. District Lending brings this mission to life. We believe in integrity, honesty, and transparency, which is why you’ll see our rates right on our website. You’ll find lower rates and zero lending fees, which means you can buy your dream home for less. The savings are passed on to you — the way it should be.”
– Brian Reese, Advisor and Co-Owner, District Lending
