Building a Home with a VA Loan
The VA Loan Program allows qualified borrowers to use their VA entitlement not only to purchase an already built home, but also the ability to obtain a mortgage for new construction. Right now, VA Loan borrowers may find it challenging to locate a lender willing to issue a VA construction loan due to the level of risk in new construction with past shake-ups in the housing market. To take advantage of this specific part of the program, especially in times of cautious lending, military borrowers should seek out what is known as "construction-to-permanent" financing.
The process involved in a construction to permanent mortgage requires the borrower to begin with a construction loan from the builder and ultimately finance that short-term loan into a VA mortgage. This allows veterans to bring their VA loan benefits into play when considering new construction.
It is important to note that these loans are typically treated like purchase loans rather than refinances. This means that borrowers will still need to meet the basic credit, debt-to-income, residual income and other requirements found with a traditional VA Loan.
Additionally, with this program, the builder must provide a one-year VA builder's warranty (on a fully completed VA Form 26-1859, Warranty of Completion of Construction). Also, the purchaser must provide written acknowledgement that he/she is aware that VA did not inspect the property during construction. See Section 10.08 of the handbook for details regarding this statement.
Where to find contact information for Construction and Evaluation - Construction and Valuation (C & V) sections are located in nine VA Regional Loan Centers (RLCs) and Honolulu. Contact information for the RLCs is available online at: www.homeloans.va.gov.
VA Builder Id's - For any property appraised as either "proposed or under construction" or "new construction", the builder must have a valid VA builder identification number prior to a VA notice of value being issued. Even if the existing property is less than one year old and completed except for customer preference items is considered "New Construction." For any property appraised as "New Construction," the builder must have a valid VA-assigned builder ID number.
Manufactured Homes - To be eligible for appraisal as real estate, VA requires that a manufactured home be installed on a permanent foundation meeting VA requirements. The Construction & Valuation Section at the VA Regional Loan Center having jurisdiction over the location of the manufactured home may be able to provide additional information specific to your area.