Can You Get a VA Loan for New Construction?

VA loans offer significant benefits to eligible service members, veterans, and surviving spouses, extending to new home construction. This specialized financing allows qualified individuals to build a custom home. New construction VA loans involve specific requirements for the borrower, property, and builder.

Qualifying for a VA New Construction Loan

To build a home with VA financing, borrowers must first establish eligibility by obtaining a Certificate of Eligibility (COE). This COE confirms service requirements set by the Department of Veterans Affairs. Active-duty service members need 90 continuous days of service. Veterans’ requirements vary by service dates, requiring 90 days during wartime or 181 days during peacetime. National Guard and Reserve members need six years of honorable service or 90 days of active duty, and certain surviving spouses may also qualify.

Lenders also assess financial standing, including a credit score (620-640) and a debt-to-income ratio (below 41%). They review residual income and stable employment to ensure comfortable mortgage payments.

The property must meet specific criteria for VA new construction financing. The new home must serve as the borrower’s primary residence upon completion. Loans are for single-family homes, though some modular, manufactured, or planned unit development (PUD) properties may also qualify.

All new construction must adhere to the VA’s Minimum Property Requirements (MPRs), ensuring the home is safe, sanitary, and structurally sound. These requirements cover functional heating, electrical systems, roofing, sanitation, and water supply. The property must also have year-round access from a public or private street with an all-weather surface, and the site should be free of hazards like improper drainage or structural instability.

The builder chosen for the new construction project plays a significant role. Builders must be licensed and insured. While a specific VA Builder ID is no longer universally mandated, some lenders prefer builders to be registered or have VA loan experience. This experience simplifies the process due to familiarity with documentation and property standards. Builders are required to provide a one-year warranty on the new home, covering materials and workmanship.

Two loan structures exist for VA new construction: one-time close and two-time close. A one-time close loan combines construction financing and the permanent mortgage into a single loan, requiring only one application and closing. This option offers cost savings by avoiding duplicate closing costs and allows the interest rate to be locked in at the beginning. Conversely, a two-time close structure involves two separate loans: a short-term construction loan followed by a permanent VA mortgage upon completion. This provides flexibility, allowing the borrower to secure a better interest rate for the permanent loan closer to completion.

The VA Construction Loan Application Process

Applying for a VA new construction loan requires selecting a suitable lender. It is beneficial to seek lenders specializing in VA construction loans, as this financing is more complex than traditional VA home purchases. Such lenders are more familiar with construction timelines, draw schedules, and specific documentation.

After identifying a lender, initial steps involve pre-qualification and pre-approval, providing an estimate of the loan amount. Lenders use automated underwriting systems for pre-approval, followed by detailed manual underwriting to assess a borrower’s financial standing and project feasibility. This stage reviews credit history, income, and financial capacity to ensure a satisfactory credit risk.

A set of documents must be submitted with the application. This includes the Certificate of Eligibility (COE). Financial documentation such as recent pay stubs, W-2 forms from the past two years, tax returns, and bank statements are required to confirm income and assets. The application also necessitates detailed construction plans, material specifications, and a contract with the builder. The builder’s credentials, including their license, insurance, and VA registration, are also submitted for review.

The underwriting process for a construction loan is thorough, differing from a standard home purchase due to the project’s forward-looking nature. Underwriters review submitted construction plans, the builder’s experience, and the project’s feasibility. This assessment ensures the proposed home will meet VA Minimum Property Requirements upon completion and that the project is financially sound. Once documentation is verified and underwriting conditions are met, the loan receives approval. The initial closing for the construction phase can then be scheduled, a process that takes 45 to 60 days.

Funding and Oversight During Construction

Once a VA new construction loan is approved and the initial closing takes place, funding transitions to controlled disbursements known as draws. Funds are not released as a lump sum but are provided in stages as construction milestones are achieved. This draw schedule is outlined in the construction contract and agreed upon by the borrower, builder, and lender, aligning payments with the build’s progress.

Throughout construction, inspections monitor progress and ensure compliance with approved plans and VA Minimum Property Requirements (MPRs). VA and lender-required inspectors visit the site at various stages, verifying work is completed before funds are released. These inspections are necessary for triggering the next fund disbursement and maintaining project quality. A final inspection is mandatory when construction is complete, and its success is necessary for the final payment release.

A key requirement for VA loans, including new construction, is that the borrower must occupy the home as their primary residence. This occupancy is expected within 60 days of loan closing or, for new construction, within 60 days of home completion. While the VA offers flexibility for delays (e.g., military orders, renovations), communication with the lender is important if an extension is needed. Borrowers commit to occupying the property for at least 12 months.

At construction completion, a final appraisal confirms the home’s value and adherence to approved plans and MPRs. For a one-time close loan, this final appraisal and inspection trigger the conversion of construction financing into the permanent VA mortgage, with no second closing needed. In a two-time close scenario, construction completion and final inspections lead to a second closing, where the temporary construction loan is paid off and replaced by the permanent VA mortgage.