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VA Construction Loans

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How do VA construction loans work?

Sometimes the perfect home doesn't exist yet. Luckily, if you're a veteran or active-duty servicemember, you aren't limited to buying a home that's already been built.

The VA loan program can be used to build a brand new home on land you've purchased. However, the process is more complicated and will take you through a variety of phases. But with an experienced lender like Low VA Rates, more complicated doesn't have to mean more hassle.

One-Time vs. Dual-Close Construction Loans
 

 
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One-Time Close

You might have heard of one-time close VA construction loans. However, it is almost impossible to find a VA lender who does them. That's because they're risky and a lot of extra hassle.

In the video above, our CEO, Eric Kandell, gives a more in-depth explanation why.

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Dual-Close

At Low VA Rates, we do what are sometimes called dual-close construction loans. Nearly every VA lender follows this process. It involves two separate loans with their own closing dates:

  1. A short-term construction loan
  2. A long-term VA mortgage loan

The Construction Loan Process

How to build your dream home with a VA construction loan.

1. Buying Land

The first step in the construction process is to buy the land your home will be built on. However, VA loans don't cover land purchases, even if you're planning on building a home there in the future. So, you can either get a traditional land loan or you may be able to finance the land purchase as part of your construction loan.

2. Find a Builder

You want to start the process by choosing a builder with a VA Builder ID because it makes it easier down the road when it's time for you to roll your construction loan into a VA loan. That's because the VA requires new constructions to have a one-year warranty from a VA builder.

3. Get a Construction Loan

Often construction loans require a down payment, which is one downside to the dual-close VA construction loan process. However, you may be able to find a lender who is willing to make an exception because of your military status.

4. Build Your Home

Once you have the land, builder, and a construction loan secured, you can start building your home. During this process, your builder will work with the construction loan lender to periodically pull out money to cover the costs.

5. Find a VA Lender

You'll want to find your VA loan lender while the construction of your home is still happening. Don't wait until it's finished! As soon as your home is done, the construction loan lender will want you to pay the loan balance in full, so you'll want the VA loan already set up and ready to go when that happens.

VA construction loan requirements

In general, the construction loan portion of the process will have its own requirements separate from the VA loan requirements. And just like with typical VA purchase loans, the lender you choose for either loan may also have their own separate overlays.

However, if you choose Low VA Rates as the lender for your VA mortgage loan portion, the only requirements you will, personally, need to meet will be the same as those for a standard VA loan:

  • Eligible military service
  • Enough residual income for your geographic area
  • Solid credit history or explanations for derogatory marks
  • Sufficient income to cover the cost of your mortgage payment
  • Debt-to-income ratio below 41%

Talk to one of our expert VA loan officers at (866) 569-8272

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Message us at (385) 257-3266

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