What’s all the hype about the va one time close construction loan? There has been a lot of news about the va construction loan that features one set of closing costs and a single loan. Here we’ll educate you more on the va construction loan process. VA loans are offered in several ways. VA lenders like Security America Mortgage have loan officers that specialize in the va construction loan.
My name is Garrett Puckett. I’m the CEO of Security America Mortgage and the purpose of this blog is to educate you on construction loans, the construction phase, the va loan program, va guidelines, the va loan benefit, the va construction loan requirements and much more so that you can make an informed decision.
A va construction loan is different than other construction loans just as va loans are different than conventional construction loans. Most lenders don’t provide VA construction loans. VA home loans for construction have many benefits over traditional construction loans. A traditional construction loan often has 2 closings and 2 sets of closing costs. The VA construction loan also allows you to have one fixed rate permanent loan as opposed to a variable rate loan for construction loan financing. A permanent mortgage up front means 1 set of closing costs, 1 appraisal and 1 closing!
To find a qualified VA construction loan lender first make sure you have a va loan officer that specializes in the one time close construction loan. A va construction loan borrower should also make sure they are in fact ready. One should be aware of their debt to income ratio. The debt to income ratio requirements are different on different construction loans. You can also consider bad credit loans canada as well.
The Veterans Affairs doesn’t mandate a maximum DTI ratio but does provide VA construction loan guidelines that places financial scrutiny on borrowers with a DTI ratio greater than 41%. The Veterans Affairs views the DTI ratio as a va construction loan guide to help lenders, and it doesn’t set a maximum ratio that borrowers must stay under. Remember that the department of veterans affairs doesn’t make home loans and that VA lenders often have additional guidelines.
VA construction loan vs conventional construction loan
In most cases, a va construction loan doesn’t require a down payment but usually has a va funding fee. Also, a va home loan doesn’t mandate mortgage insurance but instead has a va funding fee that can be waived for eligible Veterans with disability. If you are looking for a land loan you’ll find out that your va loan benefits don’t really cover land loans by themselves.
However, you can get a land loan if it’s combined with your construction loan. If you already own land that you want to build on then the va construction loan is much less complicated. If you have significant equity in your land and your loan to value on a conventional construction loan is under 80% then you aren’t required to pay mortgage insurance and this could be one example where your interest rate is better going with a conventional one time close.
Remember that when you have no down payment your loan is a little riskier. The va construction loan program is right for you if your debt to income ratio is in line and you don’t have a down payment. Remember that the minimum qualifying credit score for a va loan is often lower than with conventional home loans.
VA funding fee vs mortgage insurance or private mortgage insurance
VA loans don’t require a down payment but they do require a va funding fee. The VA funding fee is a percentage of the loan amount which can change based on the type of loan and your military category, if it’s your first-time or not and whether you make a down payment. You have the option to finance the VA funding fee or pay it in cash, but the funding fee must be paid at closing unless you’re an exempt disabled Veteran. Most Veterans pay 2.3% but this fee ranges from 0.5% to 3.6% based on the above mentioned information.
Does the VA loan require a down payment?
VA loans don’t require down payments but sometimes it’s necessary. One example is if your debt to income ratio his too high and a down payment gets it lower so that you qualify. Another example would be a situation where the home appraises for less than the purchase price and the seller won’t budge. Maybe you want the home so bad that you’re willing to bring the difference.
Interest Rates on a VA purchase loan vs fha loans and conventional
FHA loans and VA loans tend to have slightly better rates than conventional and historically, a VA loan is a little better than a FHA loan on rate. There are so many variables and your financial situation can play a big part in your rate options. Short term loans can have lower but more volatile rates than loans with permanent financing. If you make a significant down payment that lowers your monthly payments and also reduces your interest rates. 20% down on a conventional home loan with perfect credit can yield a better rate than 100% financing on a va loan.
VA construction loan vs a 2 closing construction loan
The VA Construction loan with one closing has many advantages. The construction phase can be long and if you have to close twice then you have interest rate risk. A VA construction loan to permanent loan that doesn’t require 2 closings means less closing costs. VA construction loans is a normal va home loan with additional guidelines set forth by va lenders.
VA construction loan lenders that specialize in the va home loan have many advantages when compared to mortgage loan officers who have limited mortgage products. Having no mortgage payments during construction is another benefit of the va new construction loan. A construction loan with multiple closings often require more than one appraisal. That’s an added expense and could ruin your financing if the 2nd appraisal doesn’t come in to cover the price.
The construction process and construction costs can impact your builder’s decision. Builders have 2 options on fund distribution with va construction loans. They have an interim draw option and no draw option. Which one do you see builders accepting more and why? Draw options is usually determined by the build type.
For example a builder constructing a manufactured home will often have a much shorter build time so many builders can opt to have the no draw process. Builders building a stick built home will typically have a much longer build time, 6-12 months. These builds typically come with draw requests.
Types of one time close construction loans
Security America Mortgage offers a FHA loan, conventional loan, va loan and VA loan as options for your one time close. Typical closing costs on multiple closing loans is often much more. There are many benefits to One-Time Close Construction-to Permanent loans. Did you know you can lock your interest rate prior to construction? Saving time and money is important to most American families.
With a One-Time Close va loan eligible borrowers won’t need to secure a permanent when the home is complete because that will already be included in the single closing! This is a great option for borrowers who want to build their dream home over buying it!
Security America Mortgage
Security America Mortgage offers all-in-one financing that combines the construction of a home, lot purchase/land payoff, and the permanent mortgage into one closing. One-Time Close Construction-to-Permanent loan options include FHA, VA, USDA and Conventional.
Construction process for financing, lot purchase/land payoff, and permanent loan
One closing reduces costs, time and paperwork
Your permanent loan gets approved before construction begins
Both the Construction, VA eligibility, and permanent portion is underwritten and approved
No mortgage payments due during construction
No requalification once construction is complete and inspected
Up to 100% financing based on VA guidelines and the funding fee may be financed into the loan
Your Interest rate is protected during construction
15-year and 30-year fixed-term options are available.
VA guidelines on VA construction loans
Minimum credit score of 620 for base loan amounts up to $726,200
Don’t forget that the VA doesn’t set the minimum qualifying credit score. Your lender sets the minimum credit score they will accept.
Minimum credit score of 640 for base loan amounts > $726,200
Sometimes having a higher credit score helps you qualify for a bigger loan but that depends on your lender as well. Remember that the VA doesn’t set a maximum loan amount and there is no va limit unless you don’t have full entitlement.
Maximum loan amount $1.5 million, Loan Amounts above than $1.5 million mandate prior approval
The maximum loan amount is always up to the lender and you must qualify.
Primary residence only for va construction loans
You can’t use your va loan benefit on a home you aren’t going to live in. You must occupy the home and make it your primary residence.
Types of Construction that qualify
1 unit Site Built, new manufactured housing, multi-wide housing, modular home
Were you honorably discharged?
A Certificate of Eligibility (COE) is required.
Additional eligibility requirements for va construction loans include:
Work can’t be done by the borrower
Your Builder must provide a one-year VA Builder’s warranty and register with the VA
General Contractor must be registered with the VA as well and carry sufficient insurance through a current general insurance liability policy
Per VA guidelines require periodic inspections of properties under construction on all VA mortgages.
Home construction costs vary based on material costs, interest rates, land costs, builder costs, and mortgage services. A permanent va loan with monthly mortgage payments aren’t up front. One time close construction loans have mortgage payments begin when your home is built.
Any one time close construction loan will have standard costs for billing such as permits, paying subcontractors, and down payments when not department of veterans affairs loan. A good loan officer will close construction home loans in a timely manner so you don’t incur extra costs.
Remember that you have a contract to buy land but no builder, you better have plenty of time to close on the land. Don’t forget the department of veterans affairs doesn’t approve VA builders, they only register them and lenders do home loans.