VA New Construction Loans

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New construction loans work a little differently than your standard mortgage. When you build a home with VA financing, the lender is at risk. There’s no collateral because the home isn’t built yet. If you stop making your payments, the lender doesn’t have a home to repossess and sell to make its money back.

Only a few lenders offer VA new construction loans in Colorado and I work closely with them. I understand the nuances of new construction loans, what lenders need for approval, and how to get you the financing you require.

What is a VA New Construction Loan?

When you have a home built from your specifications rather than a ‘cookie-cutter’ model home, you need a new construction loan. You need funds to buy the materials and pay for the labor to build the home upfront, and then the funds to own/live in the home. Because of its different setup, VA new construction loans have two phases:

• Construction phase – This phase of the construction loan provides funds to build the home. Builders use the funds to buy the materials and pay for the labor. You receive funds in phases, depending on the builder’s schedule. The lender doesn’t pay the builder all the money upfront. They disburse it after inspection at each building phase. The loan is temporary and must be converted to a ‘traditional mortgage’ before you move into the home.
• Mortgage phase – Once the builder completes the building process and the home is ready for occupancy, your VA new construction loan converts to the mortgage phase. This is your traditional mortgage with monthly principal and interest payments. You can’t secure a traditional mortgage until the home has a certificate of occupancy and the appraiser confirms the home’s value.

Options for Construction Costs

Veterans have two options when financing construction costs on a new construction home. I work with lenders that offer a single-close loan, which means you get both phases of VA new construction loan financing in one closing. This includes construction funding and the permanent loan.

With a single-close loan, you complete one application, verify your qualifying factors one time, and have one closing.

If you can’t find VA construction financing, you may secure construction financing from the builder. Some builders front the money as a temporary loan. The interest rates are typically much higher than VA construction loans, though, and the terms less flexible.

Once the home is ready for occupancy, I can help you refinance your construction loan into a permanent VA mortgage with a VA-approved lender. Just beware, if you choose other financing for your construction costs, you may need a down payment or have higher closing costs as the terms aren’t as attractive as the VA provides.

Converting your Construction Loan into a VA Home Loan

Once the construction phase is complete, we’ll turn your construction loan into a VA home loan. The requirements are the same as any other VA loan. You must be eligible for a VA loan, which means you have at least 90 days of service during wartime or 181 days of service during peacetime, both with any discharge other than dishonorable. You must also meet the qualifying requirements including:.

• Minimum 620 credit score (this may vary by lender)
• Maximum 41 percent total debt ratio (some lenders may allow a higher DTI)
• Proof that you’ll occupy the property as your primary residence
• Proof of enough income to cover your mortgage, other monthly obligations, and the cost of living
• Proof of adequate monthly disposable income
• An appraisal conducted by a VA-approved appraiser

Since VA new construction loans have different requirements than a standard VA purchase loan, it’s important to talk to a licensed VA professional like myself. I have many years of experience helping veterans like you find suitable financing for their new construction homes.

Contact me today and we’ll review your options, determining which one provides the best financial options.

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