Does the VA Home Loan Cover Building a House?

The VA home loan program offers significant benefits for eligible service members, veterans, and surviving spouses, extending beyond purchasing existing homes. It is possible to use a VA home loan for new construction, but it involves specific considerations and a distinct process compared to purchasing an established property.

Eligibility for VA Construction Loans

Eligibility for a VA construction loan begins with meeting standard VA loan requirements, including specific service criteria. Active-duty service members, veterans, and eligible surviving spouses may qualify, typically involving a minimum length of service or an honorable discharge. A Certificate of Eligibility (COE) verifies an individual’s entitlement to VA home loan benefits and is necessary for a VA construction loan.

The VA loan program supports the construction of custom-built, modular, and, under certain conditions, manufactured homes. However, not all construction projects are eligible. Speculative builds, constructed without a specific veteran buyer, are not covered. While land purchase can be included, the VA loan cannot be used solely for land-only purchases without immediate construction plans.

Key Requirements for a VA Construction Loan

Securing a VA construction loan involves several preparatory requirements. The builder must be VA-approved, demonstrating financial stability, a successful track record, and valid licenses and insurance. The land must have appropriate access to a public or private road and essential utilities like water, electricity, and sewage. Veterans can build on land they already own or purchase land concurrently with the construction loan.

Detailed plans and specifications, including blueprints and material specifications, must be VA-approved. These documents establish the home’s expected value and ensure compliance with VA minimum property requirements. A VA appraisal based on the proposed construction evaluates the estimated value of the home upon completion. The VA mandates inspections throughout the building process, such as at foundation, framing, and final stages, to ensure adherence to approved plans and VA standards.

VA construction loans generally do not require a down payment. A VA funding fee is typically assessed, though exemptions apply for veterans receiving VA disability compensation or eligible surviving spouses. Loan limits align with standard VA loan limits, tied to conforming loan limits set by the Federal Housing Finance Agency (FHFA) for the property’s county. Borrowers must gather documents like the construction contract and builder’s credentials to ensure project viability and compliance.

The VA Construction Loan Process

The formal VA construction loan process begins by finding a lender specializing in this type of financing, as not all VA lenders offer them. Some lenders may offer construction-to-permanent loans, while others require two separate loans. After identifying a suitable lender, the loan application package is submitted for review. The process from application to closing typically takes 45 to 60 days.

Funds are disbursed to the builder in stages, known as “draws,” as construction progresses. Each draw is contingent upon completing specific milestones, such as the foundation or framing. VA inspections occur at each draw stage. Before funds are released, a VA inspector evaluates the completed work to ensure it meets approved plans and VA minimum property requirements.

Once construction is complete, a final VA inspection is conducted, and a certificate of occupancy is issued.

Converting to a Permanent VA Mortgage

The transition from a short-term construction loan to a long-term VA mortgage is a final phase. One common approach is the “one-time close” or “construction-to-permanent” loan. With this option, the construction loan automatically converts into a permanent VA mortgage once construction is complete and all final inspections pass. This structure simplifies the process by requiring only one loan application and one closing, potentially saving time and reducing costs.

Alternatively, some borrowers opt for a “two-close” loan structure. This involves obtaining a short-term construction loan for the building phase, which is then paid off or refinanced into a separate, new permanent VA loan once construction finishes. This approach requires two separate loan applications and two closings. Some VA-specific options can streamline this transition, such as not requiring a re-appraisal if certain conditions are met with one-time close loans. The permanent VA mortgage then functions like any other VA home loan, offering competitive interest rates and no private mortgage insurance.