Your Guide for Using a VA Loan to Build a House

Robin Kocherhans Robin Kocherhans / Published Oct 12, 2018, 10:35 AM

Home being constructed for purchase with a VA home loan

It's possible for a lender to create a VA loan to build a house, if that's what you want to do. As a veteran, one of the benefits of doing this is that you don't have to make a down payment.

Not All VA Lenders Work with Construction Loans

Doing a VA loan on top of a construction loan can be a pretty complicated process. For this reason, a lot of VA lenders choose to avoid them. They'd rather just stick with standard mortgages.

That's because construction loans, in general, are riskier for lenders. Since the home usually serves as collateral, but yours isn't built yet, they could lose their money if the home is never finished or you default on your payments. Since the VA doesn't issue loans—it just guarantees a portion of the loan for the lender—private lenders often don't want this risk.

So, if it's your dream to own a custom-built home, you might need to shop around a bit for a VA lender who is willing to work with you. Not every lender is aware of—or experienced with—how to help you use your VA home loan benefits for a truly custom-built home. (Good news, though: Low VA Rates happens to be one of them!)

How to Build a Custom Home Using Your VA Benefits

Once you decide on the lender you want to use to help you finance your custom dream home, it's time to dive in to the process, which usually has a couple of extra steps compared to financing a pre-built home.

First, you will likely need to find the local builder you want to work with and finalize the plans and discuss costs. You also need to make sure that this builder has a VA Builder ID number.

If the builder you really want to work with doesn't have this ID yet, make sure they get it. It's simply a matter of submitting a few forms to register with the VA, and then waiting just a day or two for the ID number to be assigned.

Once you're sure your builder has their ID number and you have the plan and costs nailed down, your VA lender (hopefully it's us!) can get you pre-approved for the proper amount using a VA loan.

But you won't be using that VA just yet. With the pre-approval letter in hand, you will actually now need to get a short-term construction loan to cover the actual build. Your builder most likely has banks they've worked with before. If you bring that list to your VA lender, they should be able to help you decide which bank to go with.

Once you've decided on which bank or lender you want to use for the short-term construction loan, you and your builder can use your VA lender's pre-approval letter to help get your construction loan approved and building can start.

After the home is finished, that's when your VA loan comes into play. It will be used to pay off the construction loan and now you'll be using your VA-benefits to pay off your new home for the next 15 to 30 years, depending on your loan term.

Contact Low VA Rates with Any Questions

Still uncertain about the process of how to build a custom home with your VA loan benefits? Even if you're not ready to dive right in yet, one of our experienced loan officers would still be happy to talk with you and answer your questions, no obligation.

So give us a call or contact us today. We look forward to hearing from you.