Updated: Aug 16, 2021
Hello, my name is Terell Brown. I am a United States Marine, "once a Marine, always a Marine." Semper Fidelis to all of my brothers in arms.
First, I would like to welcome you to my article. Thanks for taking the time to take a look around my page. I am not sure what drew you to my site, but nonetheless - I am happy you are here.
I decided to create this article after years of reading all kinds of misinformation online and hearing all kinds of trash from unqualified people pertaining to Veterans, their VA Loan, and homeownership specifically as it relates to new construction. As a Veteran, I am always surprised to find out about benefits that I didn't know existed. I am also surprised to find out about new ways that I can utilize benefits that I already receive. Hopefully this article will either introduce you or a Veteran you know to a new benefit, or show you a new way to use a benefit in which you may have already used. If this article proves to be informative, please share it with many others.
So let's get to it.
One question you may have, "What is the VA Loan?"
The VA Loan sounds like a loan that is made by the Department of Veterans Affairs (VA). In fact, it is not. The VA is in the business of taking care of Veterans. After all, the VA motto is "To care for him who shall have borne the battle and for his widow, and his orphan." While helping Veterans obtain a home surely falls into the category of caring for those who have served, lending money is not exactly their expertise. So the VA doesn't make loans. Instead, the VA allows lenders who are the experts in lending, to loan money to Veterans to purchase a home. As an added benefit, the VA guarantees loans for Veterans. This means that the VA has agreed to pay a portion of the money a Veteran owes to a lender in the event that the Veteran defaults on their loan. This allows for lenders to make loans to Veterans with no Private Mortgage Insurance (PMI) and even no down payment! VA Loans allow Veterans to finance 100% of their loan. This saves Veterans hundreds, if not thousands of dollars that they would otherwise need to come up with to obtain financing. It also makes many more Veterans eligible to obtain a home.
Now that you know what the VA Loan is, you may have more questions:
"What can you purchase with the VA Loan? A house? A townhouse? A condo?"
Yes, Yes, and Yes! You can also use your VA Loan to build a house - new construction.
Despite what you may have heard, Veterans can use their VA Loan to build a house brand new. So why don't you see more Veterans using their VA Loan to build a house rather than purchase a home that is pre-existing? The answer is simple. Because most Veterans don't know that they can do it. Remember I mentioned earlier, I am a Veteran. I am always surprised to find out about benefits in which I am eligible but never knew were available, in addition to benefits that I use that can be used in many other ways. In this, I am not alone. There are many a disgruntled Vets who learn about benefits that they could have been using for years, but noone ever told them about it. Or never explained it in a way that they could understand how to apply it to their lives. So while the traditional VA Loan is a program that many know about, the VA Construction Loan is less known and less understood.
"What is a Construction Loan?" you ask...
Good question. A construction loan is a loan that borrowers use to construct a home from the ground up. You see, construction loans are not new. As a real estate developer, I use construction loans every day to finance the construction of multi-family developments i.e. apartments, townhomes, etc. Finding a lender who will do a construction loan will be a bit more difficult than finding a lender who will do a traditional permanent loan, but they're out there. You will need a middle credit score at or around 720, in addition to a sizeable down payment. Don't be surprised if a lender will only loan up to 70%-75% of the value of a loan requiring the borrower to put down 25%-30%. You may also need to have some reserves to make interest payments while the home is in construction... Other requirements will apply. As a Veteran, doing a little research will reveal that most lenders do not do construction to VA permanent loans. This means that you will close on a construction loan, then turn around and close on a separate VA permanent loan. Which means you will close on two separate loans. Equaling two separate sets of closings costs. You may have started to notice, constructing a home can get very expensive, very quickly.
"How is a VA Construction Loan different? Matter of fact, what is a VA Construction Loan?"
The VA Construction Loan is a one-time close, construction to permanent loan. You apply and close on the loan one time. Once you have closed on the loan, the monies are paid out to purchase the land (if you don't already own it), construct the home, and when the home is completely built your loan will convert into a regular permanent loan that most are familiar with - payments that include principal, interest, taxes, home insurance, etc. Veterans are able to obtain 100% financing for VA Construction Loans, so Vets can build a house brand new with NO MONEY DOWN. Should I repeat that? Yes, no money down. Vets are also not required to make interest payments during the construction period.
"What are the requirements to do a VA Construction Loan?"
The COVID-19 Global Pandemic has caused turbulence within the VA Construction Loan industry. Many lenders have raised credit requirements to qualify for a VA Construction Loan, while many others have completely exited the market. This makes it important to work with the most experienced professionals in the industry to save yourself heartache. Don't waste your time with people that simply are not able to help you reach your goals. The requirements to do a VA Construction Loan are similar to what is required by most lenders to use the VA Loan in general. Income/residual income/debt-to-income requirements are quite similar to traditional VA Loan requirements. So if you are a Veteran that can qualify for the VA Loan, you likely are a Veteran that can qualify for a VA Construction Loan.
If you are a Veteran, let me ask YOU a question. Would you rather buy a pre-existing home or build it brand new? When you build it brand new, you choose the house's layout and floor plan, you can incorporate passive solar design, you pick out what flooring and counter-tops you want, you even choose the location in which you want to build the house. VA Construction Loans are great for those wanting to incorporate solar energy. Building a house brand new with solar panels will save you thousands of dollars as compared to retrofitting a pre-existing home. For some, buying something already built makes sense. But for others building what you want, where you want it makes perfect sense too.
I'm going to stop here for now. I hope this article has provided some food for thought. If you have found this article to be helpful, please share with everyone you know. Let's get started on the road to developing your own home.
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