Your Guide to VA Construction Loans
VA construction loans are short-term loans that help military members build their own homes—with better interest rates and no down payment requirements.
Written by Payton Ternus
Reviewed by Melanie Reiff
Veteran Affairs or VA construction loans are short-term loans designed to help veterans and active service members cover the costs of building their own homes. For those who qualify, there are plenty of benefits to these construction loans, including no down payment requirements and better interest rates.
If you’re an active member of the military or a veteran looking to build your own home, you may qualify for a VA construction loan to help cover the costs. They can be tricky to find, but they come with multiple benefits like no down payment or PMI requirements, better interest rates, and lower closing costs.
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What is a VA construction loan?
Veteran Affairs or VA construction loans are specialized short-term loans for active military members or veterans to help cover the costs of building a home. Unlike a standard
VA loan
that’s paid in one lump sum upfront, a VA construction loan pays for the home as it’s built.There are several advantages to getting a VA construction loan:
- No requirements for a down payment
- Many are exempt from the VA funding fee
- Lower closing costs and interest rates
What are the requirements for a VA construction loan?
There are some requirements you need to meet to receive a VA construction loan, including:
- Active service member or veteran
- A credit score of 640
- Debt-to-income (DTI) ratio below 41%
- No bankruptcy in the past two years
- Stable employment and income
You will also need to find a licensed and insured builder, submit a copy of your completed project plans, submit documentation about the planned materials, verify the land will be your primary residence, meet all VA property requirements, and complete a
home appraisal
.Key Takeaway If you’re a qualifying active service member or veteran, you could get a VA construction loan for home building costs—with the benefits of a zero down payment requirement and lower interest rate.
How to find a VA construction loan lender
A VA loan doesn’t come directly from the Veteran Affairs itself—you will apply for the loan through a credit union, bank, or other lender authorized to offer VA loans.
It can be difficult to find a credit union or bank that offers VA construction loans. There is only a small percentage of lenders offering construction loans that also offer
VA or FHA loans
. The U.S. Department of Veterans Affairs did not provide much guidance to lenders regarding these loans until 2018, so the few permitted lenders were almost on their own.The best way to find a VA construction loan lender is to find a local lender that offers VA loans. Then, you can go from there—speak with a loan officer to see what they can offer you depending on your project or if they can refer you to another lender.
If you aren’t able to find any VA construction loan lenders, you still have the option of getting a conventional construction loan. You can refinance it to a VA loan later on or roll it over into a conventional mortgage.
How to secure a VA construction loan
Ready to begin building your dream home? Here is how military members can get a VA construction loan to help cover building costs.
Determine entitlement and eligibility
The first step is proving that you’re eligible for a VA construction loan. You will need to obtain your Certificate of Eligibility (COE), verifying that you have met the necessary service requirements. The application for your COE is in the online
VA eBenefits portal
.If you are an active service member, you will need to supply a statement of service signed by your personnel officer to your lender. Veterans will need to provide DD214 discharge papers.
Find a registered builder
To qualify for a VA construction loan, the builder you work with must be licensed, insured, and registered with the VA. Your loan lender will most likely have an approved list of builders for you to choose from, or your builder will be required to complete the registration process for the VA.
The
Veterans Information Portal
is a great tool to find VA-registered builders near you. If the builder you want to work with isn’t registered yet, they need to get a VA Builder ID number by submitting their builder information, certifications, VA Form 8791, and VA Form 26-421 to your local VA Regional Loan Center.Pick a lender and apply for preapproval
Like most things, you’ll want to compare lenders before making a decision. Since VA lenders can be hard to find, you’ll need to explore your options before applying.
Once you find a lender, you need to get preapproved for the loan. You will need the following documents:
- Bank statements
- COE
- Construction contract with your builder
- Driver’s license or photo ID
- Two years of federal tax returns
- Pay stubs
- Statements to any retirement or investment accounts
- Deed to the land with survey and settlement statement if you have already purchased the land
- Purchase agreement to the land; if you do not own it yet.
Submit building plans
Your lender will need to see completed plans for your home project. To move forward, your builder will need to provide the proper paperwork detailing your future home site, the lot itself, and the building materials that will be used. It’s also helpful to provide your lender with the contract, plans, specs, and a survey of the home site.
Complete a home appraisal
You will be required to pass a VA home appraisal to move forward with your plans. The appraisal will be based on your completed set of plans.
Your plans will need to meet the VA’s requirements to qualify for a zero-down payment loan—it’s best to stick with building plans that fit the area’s standards. The appraisal could fall below what is needed to qualify for the loan if the plans are excessive compared to your neighbors.
Close on the loan
It usually takes 45 to 60 days (or longer) to process a VA construction loan with all the required documentation. You should make the seller aware of this window if you do not yet own the land.
There is also a funding fee associated with most VA loans. Since VA loans don’t require down payments or mortgage insurance, this fee helps reduce the cost for taxpayers—whose tax dollars are funding the program. Unless you’re exempt from the funding fee, you’ll need to pay it within 15 days of closing.
Once you close on the loan, payments will be made based on your project timeline. The loan balance will go into an escrow or draw account to come out in installations.
Pass final VA inspection
The last step happens once the construction of your new home is complete. Your home will need to pass a final VA inspection to confirm you and your builder followed the original plans.
Your home project is considered complete once you pass the inspection, and the VA construction loan will then become a permanent VA loan—which is another way of saying a traditional mortgage or VA loan.
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Who offers VA construction loans?
VA construction loans can be harder to find. The best option is to find lenders in your area that offer VA loans and speak with a loan officer to see how they can help.
Does a VA loan cover new construction?
VA loans can be used to cover the costs of new construction. You’ll need to consult with a loan officer to make sure you’re following all of the correct steps, and some lenders may require a down payment.
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