Which Lenders Offer VA Construction Loans?

VA construction loans allow eligible veterans and service members to build a new home. These specialized loans finance new home construction, differing from standard VA home purchase loans. While offering a valuable homeownership opportunity, the process is more intricate than acquiring an existing property.

Understanding VA Construction Loans

A VA construction loan is a short-term financing option covering new home construction costs. Unlike a traditional mortgage, funds are disbursed in stages, known as draws, as construction phases are completed. This structured disbursement aligns payments with project progress.

VA construction loans differ from standard VA purchase loans by financing new home creation rather than an existing property. They share many benefits with traditional VA loans, such as no down payment and no private mortgage insurance (PMI). Some borrowers, like those receiving VA disability compensation, may also be exempt from the VA funding fee.

Eligibility requires a Certificate of Eligibility (COE) from the Department of Veterans Affairs, confirming service history meets VA minimums. This includes active military service, honorable service in the Reserves or National Guard, or being an eligible surviving spouse. Lenders also have financial criteria like credit score and debt-to-income ratio.

VA construction loans cover primary residences, including single-family homes and, in some cases, multi-unit properties (up to four units if owner-occupied). They can also finance modular homes, manufactured homes, and barndominiums, provided these structures meet VA property standards and are affixed to a permanent foundation. Financing can include land purchase if part of the construction project.

VA construction loans have two common structures: one-time close (construction-to-permanent) and two-time close. A one-time close loan combines construction financing and the permanent mortgage into a single loan with one closing, automatically converting to a permanent VA mortgage upon completion. A two-time close loan involves two separate loans and two closings: one for the short-term construction phase and a second for the permanent VA mortgage after the home is finished.

Identifying Lenders for VA Construction Loans

Finding a lender for VA construction loans is more challenging than for standard VA purchase loans, as not all VA-approved lenders offer this product. Due to complexity and risk, fewer financial institutions specialize in them. Specialized mortgage companies, credit unions, and regional banks are generally more likely to offer these programs.

Begin your search by directly inquiring with lenders about their VA construction loan offerings, specifically asking about one-time or two-time close options. Online searches using terms like “VA construction loan lenders” or “one-time close VA construction loan” can help. Referrals from other veterans who have built homes can also provide valuable leads.

When contacting potential lenders, inquire about their requirements for builders, such as whether they need to be VA-approved or meet specific licensing and insurance criteria. Understanding the lender’s process for approving construction plans and conducting inspections throughout the build is also important. Some lenders may maintain a list of pre-approved builders, which can simplify the process.

Lenders may also have specific requirements regarding the property itself, such as the maximum land size or location within VA-approved areas. Confirming these details early in the search process can prevent wasted effort.

Navigating the Lender-Specific Process

Once a potential lender is identified, the next phase involves their specific application and approval process. This often starts with pre-qualification, where the lender assesses financial readiness based on income, credit history, and debt-to-income ratio. While the VA sets broad guidelines, individual lenders establish their own thresholds, often requiring a minimum credit score in the 620-640 range.

A critical component of the lender’s process involves detailed construction plans and a proposed budget. Borrowers must submit architectural drawings, material specifications, and a comprehensive cost breakdown from their chosen builder. The builder must be licensed, insured, and meet the lender’s qualifications. Many lenders also require the builder to provide a new construction warranty on the home.

The lender orders an appraisal based on the future value of the completed home, using submitted plans and specifications. This appraisal ensures the proposed home’s value supports the loan amount. After plans, financials, and appraisal are reviewed, the loan moves into formal application submission and underwriting. This stage involves a thorough review of all documents for compliance with VA guidelines and lender policies.

For a two-time close loan, the initial closing covers the construction phase, with funds disbursed through draws as milestones are met and verified by inspections. Upon completion, a final VA inspection confirms the home meets minimum property requirements. A second closing then occurs for the permanent VA mortgage, paying off the construction loan. In a one-time close scenario, a single closing occurs before construction, and the loan automatically converts to the permanent mortgage once the build is complete.