Can I build a house with no money?
Do you want to build a new home from scratch? Are you an active service member or a veteran?
If so, then you can qualify for a VA home loan, sometimes called a VA home loan.
This loan can be used to finance everything from the purchase of a property to construction and a permanent mortgage for the finished apartment. And as with all VA mortgages, no down payment is required for eligible borrowers.
The catch? VA construction lenders can be hard to find. So you may need to do some digging.
Learn more about what is required, how to qualify, and if a VA home loan is right for you.
In this article (continue to …)
What is a VA construction loan?
If you’re an active-duty member or veteran with valid service history – or a surviving spouse – you may be able to benefit from a generous US Veterans Department loan program: the VA Home Loan.
For eligible borrowers, a VA construction loan can simplify the construction of your dream home.
“The benefits of a VA home loan include no down payment for full veterans, 640 minimum credits, and no private mortgage insurance for the one-time VA close in one loan versus up to three for the traditional loan route,” says Richie Duncan , Area Manager at VANationwide.com.
And the VA building loan is flexible. The funding can be used for:
- The total cost of buying a piece of land, building a home on it, and financing the permanent mortgage on the home when it is finished. With this option, there is only one underwriting process, one valuation, one set of closing costs, and a single closing. This is known as a VA one-time home home loan
- The combined cost of buying land and building a home on it, after which your VA home loan can be refinanced to a separate one Permanent VA Mortgage Loan. With this option, an individual appraisal and financial statement are required for the short-term loan, but a separate underwriting process, appraisal and closing costs are required for the VA long-term loan
- The construction of your own home on a piece of land that you already own or finance separately, after which your VA home loan can be refinanced into a separate VA long-term loan. As with option two, the VA home loan has a single rating and completion, but the VA permanent mortgage loan requires a separate subscription process, assessment, fee, and completion
The only problem is that VA construction lenders are difficult to find. If you can’t find a ready lender, you may need to seek alternative financing options instead.
Check your building loan eligibility (August 6, 2021)
The VA construction loan process
According to Julie Aragon, CEO and Founder of the Julie Aragon Lending Team, the VA construction loan process involves a number of steps:
- Your eligibility for VA benefits will be verified by obtaining a Certificate of Eligibility (COE) and providing personal financial information to the lender. Prepare to collect and review copies of current credit reports, proof of income, bank statements of current bank and investment accounts, and other financial documents that the lender may request
- Find a lender that offers VA home loans and get pre-approved. Note that the VA does not lend directly, so you will need to find a private lender that offers this program
- Choose a licensed builder / general contractor who is properly licensed and VA approved and submit your home construction plans to the lender
- Have the property valued
- Have the finished house inspected according to VA standards and complete the closing process
- If your VA home loan does not have a permanent mortgage loan component, then you will need to refinance into a VA home loan after the home is built
“Note that with VA construction loans, the funds for building the house are paid out in a series of installments or ‘draws’ at certain milestones as construction progresses,” explains Aragon.
Requirements for the VA construction loan
Several rules apply to VA home loans, including guidelines for the borrower, the contractor, and the home being built.
Requirements for the borrower
First of all, you need a decent credit score.
“While VA guidelines don’t require borrowers to have minimum creditworthiness or meet any other financial criteria, most actual VA lenders will. To improve your chances of eligibility, aim for a credit rating of at least 620 to 640, ”recommends Aragon.
- Your debt-to-income ratio (DTI) should be below 41%
- You need to meet income requirements based on the size of your family
- You must not have experienced any bankruptcy in the past two years
- You need a stable income and employment; You need to be able to easily afford the mortgage payments
Prepare to review two year income when applying for a VA home loan.
For W-2 borrowers, collect pay slips for the last 60 days, W-2 for the last two years, and your last two annual tax returns. Self-employed borrowers should obtain full personal and business tax returns for the past two years, as well as any tax plans involved.
Real estate requirements
The house to be built must also meet certain requirements, including:
- The finished house must be used as the main residence itself
- Buildable apartment types include single-family houses, condominiums in approved projects or legal phases, and prefabricated houses
- Your total construction / mortgage loan amount cannot exceed $ 548,250 in 2021 for most U.S. counties
- The property must be in an area approved by the VA and may meet the VA maximum land restrictions, such as: B. 10 acres., Do not exceed
- The property must be viewed by a specialist approved by the VA
“Remember that local regulations determine the real estate requirements for your VA construction loan,” notes Dan Holtz, Co-Founder and CEO of the Sovereign Lending Group.
Lender / Contractor Requirements
Finally, there are limitations that you can work with.
- You must select a VA approved mortgage lender who will participate in the VA home loan program
- The VA must approve your selected contractors. “You must have a license, liability insurance, and at least two years of house building experience,” says Duncan
- You must receive a new build guarantee from the client
Finally, any funds remaining after construction must be added directly to your loan amount. You cannot get cashback on this type of loan.
VA construction lender
Note: It can be difficult to find VA home loans or lenders who offer these loans.
“Many lenders offer standard VA home loans to those buying existing homes. But VA construction loans offer fewer ”, warns Aragon.
“Additionally, the VA has traditionally provided limited guidance on its construction loans, leading to widespread uncertainty and ignorance of lender policies and requirements,” she continues.
The good news is you can visit the VA website to look for VA approved lenders. However, not all VA lenders offer VA home loans. So be prepared to contact multiple companies until you find one that does.
VA home loan interest
Another caveat is that you will likely be paying a higher interest rate on a VA home loan than you would on a regular VA mortgage loan.
“This is because the participating lenders consider home purchase loans to be a bit riskier,” explains Aragon.
The interest rates for building loans are usually at least 1% above the usual mortgage rates.
“Unlike a mortgage loan for an existing home, there is no finished property to serve as collateral. So expect the interest rate to be a bit higher – usually 1% higher or more, although the rate you quote may vary. “
Another reason your rate could be higher? “A long-term interest freeze is required, which can lead to a higher interest rate,” says Holtz.
Other mortgage lending options
If you don’t qualify for a VA construction loan or can’t find a participating lender, you’re out of luck. There are other financing options that you can avail for your new home.
For example, you could get a separate home loan to buy the property and a traditional home loan to pay for construction costs, followed by a separate VA home loan to fund final residence.
“The downside to this approach is that you have separate underwriting, ratings, closings, and fees, and your home loan without a VA is likely to require a down payment,” says Duncan.
Or, you can pursue an FHA permanent construction loan that combines land purchase, construction costs, and permanent mortgage financing of the completed home into one loan with a valuation and a single close. However, you will likely need to take at least 3.5% to 10% off and pay for private mortgage insurance upfront and annually.
Alternatively, if you choose a USDA-approved rural area to build a home, you may be eligible for a USDA permanent construction loan. These, too, do not require a down payment and combine property purchase, construction costs and long-term mortgage loans in one loan product.
Finally, instead of building a new home, homebuyers might consider buying a fixer-upper.
You could pay for the home and rehab with a VA home renovation loan or another home improvement loan.
Check your building loan eligibility (August 6, 2021)
The bottom line: review all of your options
Whichever route you choose, make sure you explore all of your options.
Even though construction loans are a little harder to come by, you still want to shop around and make sure you are getting the best type of loan and interest rate that are available to you.
Confirm your new price (August 6, 2021)