Introduction to VA Construction Loans
One possible use for a VA construction loan is to construct a new home on a plot of land, and eligible veterans can use their VA entitlement as part of a construction mortgage. However, in practice, this can be very hard to do. Many lenders are not prepared to offer VA construction loans due to the issues they encountered in the aftermath of the recent housing collapse. They are also frequently cautious due to the up-front construction costs. Even in the event that the borrowers are able to find lenders that offer VA construction loans, such lenders may not issue loans without deposit contributions, which undermines some of the benefits associated with using VA loans.
However, many veterans have found a way to work around these challenges. Namely, they secure general short-term construction loans from local financial institutions and then refinance the home using a VA home loan once the construction is completed. One downside to this strategy is that local financial institutions will typically require a down payment before they will lend money. In addition, the borrower may incur closing costs and additional expenses. As such, veterans who are interested in taking this approach should ensure they thoroughly research all the options that are available.
If you are considering getting a construction loan, make sure you talk to a VA lender first. Some lenders may be prepared to make exceptions for veterans who wish to construct their own homes. After all, your business is valuable, and the loan providers will be competing for your custom.
If you do choose to obtain a construction loan first, when it comes to transferring this into a VA home loan you may have two options. Lenders may treat the loan like a refinance or a new purchase loan. Either way, if you wish to borrow money in this way, you will be subject to the lender’s financing requirements in terms of factors such as debt-to-income ratio, credit score, and employment. You should also start looking for a refinancing or home purchase loan long before construction is complete. As construction loans are short-term by their very nature, you will benefit significantly from having a longer-term financing option available.
When veterans seek to refinance or secure a loan against a recent construction, the builder will be required to provide the lender with a one-year warranty on the construction and will need to produce evidence that a valid VA builder ID was in place throughout build period.
Always consult with a VA loan specialist at Good To Go Mortgage before. These experts may be aware of financial institutions that can offer you more attractive loan terms. They will undoubtedly be able to help you transform a construction loan into a VA loan of some description.