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How Do VA Construction Loans Work?

Wednesday, May 3, 2017 - Article by: - Mortgages for America - Message

If you're thinking of building a new home, a VA construction loan is a great way to finance the endeavor. Building a home rather than buying an already built home requires lots of patients and hard work. From finding the right builder to finding a lender willing to lend money for the construction process, things can be complicated.

Luckily, the Department of Veteran Affairs offers construction loans for veterans and active-duty military members. Here's a basic run down of how VA construction loans work:

  1. Find a lender: The first step in obtaining a VA construction loan is find a lender willing to loan the money. Since these loans tend to be riskier than conventional mortgages, this step can be difficult. However, Mortgages for America and Mortgages for Veterans is pleased to announce that we now offer VA construction loans.
  2. Make sure you credit is in order: As with any home loan, the better your credit, the easier the process will be. Plus, borrowers with better credit tend to qualify for better interest rates. Make sure to check your credit with all three credit bureaus (TransUnion, Equifax and Experian) before applying for a home loan. You can obtain a free copy of your credit report every year at After that, you can get pre-approved.
  3. Find a builder: Once you're pre-approved and you know what you can afford, it's time to find a builder. Every lender will have different requirements for the builders, but for the most part a blueprints and detailed construction plan with deadlines is required. Lenders also require the builder's work history, insurance, and references. Once this information is collected, the lender can approve the loan.
  4. Construction draws and interest: Construction loans are different from convention loans in that the lender pays the builder periodically throughout the construction process in what is known as draws. As certain building milestones are met, the builder is paid. The loan also starts accruing interest with every draw the lender makes. While some lenders require borrowers to start making interest payments with the first draw, others will roll the interest into the mortgage.
  5. Loan conversion: Once the home is built, all necessary building permits are finalized and the builder has been paid in full, the construction loan converts to a standard mortgage and regular monthly interest and principal payments are due.

For more information on VA construction loans, call us today for a free consultation.


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