VA Construction Loan
The One – Time Close program provides interim construction financing, lot purchase* (if needed ), and permanent loan all wrapped into one. Because the permanent loan is closed before construction begins, there is no “requalifying” of the borrower when converting from the construction phase to the permanent phase of the loan. Therefore, there is no need for a second appraisal , second closing, or incurring any additional closing cost
- The loan is 100% in place prior to construction
VA Construction Loan Process
- First, please watch the above video, which will answer most of your questions about the loan
- Please read this article in its entirety before you reach out.
- Here is a quick presentation digging into the details of the loan a little deeper
- Mortgage approval. When you have an idea of how much your total project will cost, then you will need to ensure that you will qualify for the loan – here is the link to the loan application
- If you have questions that you would like answered, please schedule us a time to discuss https://calendly.com/sparkmanteam/construction-loan-consult
- You will need to have identified the piece of land that you would like to purchase, house plans, and a cost estimate from a reputable builder before we can begin the process.
Once you are ready to go:
Here is how the process looks in this order for the most part:
- Find the land
- Builder begins the certification process
- Chose floor plans
- Finalize cost estimate
- Loan application
- Submit the loan for pre-underwriting
- Order Appraisal
- Building permits obtained
- Close the loan
- Funds are cut for the lot acquisition, lot prep, construction draws, realtor commissions, etc…
VA Certified builder
Lastly, there are few builders certified to offer this product. The builder has to submit financials to the lender and get approved by the lender in order to get certified. We can help with this process. Please have your builder email us at firstname.lastname@example.org
The builder/contractor must be approved by Granite to be eligible to complete the project. The approval process can be started before a property is found and must be completed on every loan regardless of if the builder/contractor is already approved. The builder/contractor approval process must be completed prior to underwriting. The $150 approval fee should be paid by the borrower. This fee is to be paid to Granite each time the process is complete.
- The client will fill out the top and bottom sections of the Contractor Acceptance Checklist – Form B to then be sent to the builder/contractor
- The builder/contractor or the client is responsible for completing the checklist items and sending necessary documents to Granite
- Granite will review the information and issue the contractor approval back to the client
- 3 business day turn time for initial review
- If additional information is needed in order to issue the approval, Granite will reach out directly to the builder/contractor – additional 2 business day turn time
- The builder/contractor must download the forms listed on the VA website and send the completed forms to their Construction & Valuation Point of Contact
- Builder Information and Certification
- VA Form 26-421 Equal Employment Opportunity Certification
- VA Form 8791 VA Affirmative Marketing Certification
- The VA will issue the builder/contractor a VA Builder ID Number
- 5 business day turn time for ID issue
Certified VA Construction Loan Lender
Most importantly, we are a certified VA Construction Loan Lender experienced in what it takes to help you. I have closed hundreds of custom home loans in my career. The process is difficult enough as it is. Thus, you do not want to trust a VA construction loan to a novice. The last thing you need is a lender who needs help understanding VA construction Loans or VA loans in general
Pros and Cons of a VA construction loan
Pros of VA construction loans:
- No down payment: VA construction loans do not require a down payment, making it easier for veterans to obtain financing.
No payments due from borrower during construction No re-qualification once construction is complete Single closing reduces total costs Realtor commission generally paid-in-full at closing (prior to construction commencing)
- Lower interest rates: VA construction loans generally come with lower interest rates than traditional construction loans, which can save borrowers money over the life of the loan.
- No PMI: VA construction loans do not require private mortgage insurance (PMI), which can save borrowers hundreds of dollars per month.
- Flexible qualification criteria: VA construction loans typically have more flexible qualification criteria than traditional construction loans, making it easier for veterans to qualify.
Cons of VA construction loans:
- Plans are not changeable. Once we close on the loan, you are unable to go back to the lender and ask for additional funds.
- VA entitlement eligibility. Usually the VA construction loan will tie up your VA entitlement.
- If you currently have a home financed with a VA loan, you may have to refinance it to a conventional loan to free up your VA entitlement
- The builder will have to go through the approval process and become certified with the lender
Frequently Asked Questions
Q: Can I do some of the work myself?
A: No. The borrower cannot perform or subcontract any of the work. The builder must be solely responsible for a turn-key product
Q: Is there a list where we can see if a builder is already approved?
A: No, but feel free to email: email@example.com and we will let you know if the builder is approved.
Q: Are the permits included in the loan?
A: All required costs associated with the construction of the home (hard and soft costs), applicable structures, and site improvements to complete the project 100% and meet FHA/VA/USDA guidelines must be included in the builder/retailer’s costs.
Q: Can you use a lot that the Borrower is financing through the builder?
A: The Borrower may purchase the land from the builder/retailer or from a third party.
Q: Do you have to own the land for at least 6 months in order to use the equity towards the down payment on a FHA/VA/ USDA OTC?
A: No, there is no seasoning requirement. If the land was purchased less than 6 months prior to closing, its value will be considered its recent acquisition price. If more than 6 months ago, it will be determined by the appraiser’s opinion of site value.
Q: Who orders the appraisal?
A: The lender is responsible for ordering the appraisal through a 3rd party Appraisal Management Company, same as any other loan program.
Q: Is there a limit on how much acreage can be purchased?
A: No, FHA/VA/USDA do not have any acreage limitations, however the appraisal report must have comparable homes with similar acreage and the appraiser must comment that the acreage is typical/common to the area.
Q: On a gift of deed can we start building immediately after the deed is transferred or do we have to wait 6-12 months?
A: There is no land seasoning requirements on FHA/VA/USDA OTC.
Q: What does the 3 day “cooling off” period mean?
A: After closing, outside of land purchase and mortgage payoffs which funds immediately, no other funds are disbursed until 3 business days have passed. Please note that this is not to be construed as a “rescission period.”
Q: Does the added soft cost to the contract price create appraised value issues?
A: As with all purchases, the maximum loan amount is determined by the lesser of the appraised value or the contract purchase price. This may or may not be an issue, and is deal-to-deal dependent.
Q: Does each stage happen one at a time, or can some stages occur at the same time for example underwriting the Borrower at the same time as the construction underwrite?
A: No, the construction underwriting does not occur until the Borrower has been approved. The OTC process is a linear process flow. Each step builds upon and is dependent on the previous step therefore each must be completed in order to continue along the process.
Q: How does the Builder register with the Department of Veterans Affairs?
A: Too easy! The builder will need to submit the 3 requested items to the local Regional Loan Center: 1. Builder Information and Certification 2. VA Form 26-421 (Equal Employment Opportunity Certification) 3. VA Form 8791 (Builder Information VA site)
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