The VA offers this version of the program for veterans who want to build a home on land they already own, or want to purchase land and build upon it.
For veterans that wish to build a home the VA construction loan allows them to finance the builder’s price to build the home, the cost of the land, and any permits not included in the builder price. In addition, the veteran can finance the cost of any extras over and above the contract price and any out of pocket expenses.
The construction period is part of the loan term. The builder is required to pay the interim interest, inspections fees, and insurance during the construction period. The builder must be approved and registered with the VA. The construction fee is 1-2% depending on the amount paid out during construction. This can be used to construct doublewide manufactured homes, as long as they meet the VA’s stringent requirements.
The builder will be required to have a VA Builder ID. The VA also allows veterans to self-build, essentially making them the general contractor for the construction of their own home.
This product can also be used for veterans looking to build a farm residence. Funds can be used to build the home as well as additional structures that may be needed for the operation of the farm, such as barns, silos, outbuildings, etc.
Construction loans can also be used to pay out any existing liens on land the veteran already owns. It should also be noted that the VA construction loan can also be used to purchase and renovate an existing home.
The biggest challenge with the VA construction product is not the loan itself. Rather it’s with finding a lender that will offer it. Most lenders have stayed away from this product since the housing market collapse. Veterans are often referred to an interim construction loan product with the lender offering to refinance them out of that loan with a VA loan once the home is complete.
However, interim construction loans are generally not 100% financing. This may require the veteran to put up 10-20% of the total cost of construction out of their own pocket. That big of a cash investment may prevent some veterans from being able to build.
Check with the builder you want to work with and see if they carry the construction financing, or if they expect the buyer to do that. If you’re required to have your own construction financing, ask your lender very early in the process if they offer the true VA construction loan.