What is a VA Construction Loan?

VA home loans, in general, are loans backed by the US Department of Veteran Affairs meant to help veterans get the accessible home financing they deserve. If you’re applying for a VA loan, you won’t need to give a down payment or have a high credit score, and they have some of the lowest interest rates around. For VA construction loans, or ‘USAA construction loans,’  the benefits are the same, but the restrictions are much tighter. If you have outstanding credit and a solid building plan you might get lucky, but the more common home financing option used by vets for financing extensive repairs and building projects is to just use a normal VA loan to refinance a construction loan. Refinancing your construction loan will effectively give you VA rates on 3rd-party construction financing. Many construction loans need to be refinanced into a mortgage after building, which simply means taking out a mortgage to pay back the building cost over time, since you’ll usually only pay interest during the actual building phase of your home. If you’ve spent time in the military, or if you’re the spouse of military personnel, using a VA mortgage could make this part of the process simpler.

Rates (%)

Rates for construction loans depend on the size of the project, and are usually a bit higher than mortgage rates since the payment term is usually only about 1 year long. As for VA home loans, these tend to have pretty low rates, as low as 3.875% for 15-year loans and 4.375% for 30-yearloans.

Credit Requirements

VA construction loans are rarely given out, and you’ll want to do anything you can to increase the odds of getting approved for one. Making sure you’ve got a credit score of around 700 is a good start. It’s a good idea before applying for your loan to check your credit score, correct any mistakes, and work on improving it if it’s less than 700. Even a single late payment can bring down your credit score significantly, so just by keeping up with your payments you can get your credit up to a healthy score. As for the refinancing part, if you’ve been approved for a construction loan, you should have no trouble getting approved for VA mortgage refinancing. Usually the most important thing the VA wants to see is that you’ve got enough income to cover your usual monthly bills (including loan payments) with money left over for basic expenses (food, transportation, etc.). Va loans usually take about 30 – 45 days to process. You can speed up the process by making sure you’ve got all the necessary documents on hand when you first apply. The documents you’ll want to have ready are as follows:

  • Credit report
  • Bank statements and pay stubs
  • Tax returns and W2’s
  • Employment history
  • Statement of your military service

Getting VA approval for an actual construction loan is rare, but not impossible. If you’ve got a great credit score, a strong, detailed building plan (including proof of a qualified builder with good references), and a little patience (you might have to go through a few different lenders before you find one), you’re dream home may be just beyond the horizon.

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