The 1940s in the U.S. were defined by World War II and the Baby Boom generation that followed as soldiers returned home. To provide housing for these veterans and their families, President Roosevelt created the Servicemen’s Readjustment Act, commonly known as the GI Bill, which generated college tuition and home loans for those who served on the battlefield.
Over $33 billion in home loans were issued to veterans, and the United States Department of Veterans Affairs (VA) is one of two government entities that provide guarantees for no-down payment home mortgages.
The VA does not directly loan money, but rather guarantees conventional lenders that a portion of the loan will be repaid if the borrower defaults. This assurance enables lenders to offer our veterans more attractive mortgage rates and terms.
In November, we celebrate National Veterans and Military Families Month and Veterans Day, making it the perfect time to explore the housing benefits available to our nation’s heroes. While the VA offers several loan programs, one of the more challenging ones to obtain is the construction loan.
Although allowed by law, many lenders are hesitant to provide construction loans for VA loans due to the risks involved, such as construction disputes.
If a borrower wants to act as their own contractor, they will most likely need to find construction financing outside of the VA and obtain a VA loan to refinance the construction loan once construction is complete. Although it may be challenging, it is not impossible to find a lender willing to underwrite a construction loan.
To qualify for the VA construction loan program, the applicant must be a U.S. veteran, active-duty service member, current Reserve or Guard member with at least six years of service, surviving spouse, or a current or former Commissioned Officer of the Public Health Service and National Oceanic and Atmospheric Administration.
They must have separated from the service under other than dishonorable conditions, have decent credit, sufficient income to make mortgage payments, and a valid Certificate of Eligibility (COE). Finally, the veteran or surviving spouse must intend on living in the home.
There are two types of VA construction loans: one-time close loans, which close both the construction loan and permanent financing simultaneously, and two-time close construction loans, which include two closings, one before construction and the other after construction to replace the initial loan.
The veteran does not begin making payments until the home’s construction is complete, and the builder has specific VA-mandated fees to pay during the home’s construction, including paying interest, commitment fees, inspection fees, title fees, and insurance.
Applicants for the VA construction loan need to obtain a Certificate of Eligibility (COE) and provide proof of military service, preferably with DD/214 separation documents. Surviving spouses need to use VA Form 26-1817, Request for Determination of Loan Guaranty Eligibility – Unmarried Surviving Spouses, which can be found on the VA website. For further questions, contact the VA Regional Loan Center nearest you.
You’ll also need proof of military service. DD/214 separation documents are the best way to provide this proof and you can submit your request for the records online or by fax or mail.
The process is a little different for surviving spouses. They need to use VA’s Circular 26-18-7., Request for Determination of Loan Guaranty Eligibility – Unmarried Surviving Spouses which can also be found at the VA website.
If you have questions about the VA construction loan, contact the VA Regional Loan Center nearest you.
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