VA Construction Loan FAQs

1. Can you get a VA loan to build a house?

Yes. Eligible Veterans can use VA financing to build a new primary residence when the construction project meets VA and lender requirements. A VA construction loan can finance the homebuilding process and provide a path to permanent VA mortgage financing once construction is complete. Merchants Home Lending helps Veterans evaluate their construction financing options and navigate the process from planning through completion. 

2. How does a VA construction loan work?

A VA construction loan finances the construction of a new home rather than an already completed property. Depending on the structure, financing can be arranged as a one time close construction to permanent loan or through separate construction and permanent financing. Merchants Home Lending works with eligible Veterans to structure the financing around their land, construction plans, builder, and long term mortgage needs. 

3. How much can I borrow with a VA construction loan?

The amount you can borrow depends on the reasonable value of the completed property and the eligible acquisition costs of the construction project. Your income, credit, debts, VA entitlement, land, construction contract, and appraisal also affect the amount you may qualify for. Merchants Home Lending reviews your complete financial profile and construction plans to determine the appropriate loan amount for your situation. 

4. Can I get a VA construction loan with no down payment?

Potentially, yes. Eligible Veterans with sufficient entitlement may be able to finance a qualifying construction project with no down payment. The actual amount you need to contribute can depend on the loan amount, property value, entitlement, appraisal, and lender requirements. Merchants Home Lending can review your VA eligibility and construction plans to determine whether zero down financing is available.

5. Can a VA construction loan include the cost of land?

Yes. Under VA construction loan rules, eligible acquisition costs can include the balance owed on the land when properly documented. This means Veterans may be able to structure financing that accounts for both the land and construction of the home. Merchants Home Lending can review whether your land purchase or existing land position fits the proposed financing structure. 

6. Can I use a VA construction loan if I already own the land?

Yes. Already owning land does not automatically prevent you from using VA construction financing. However, how the land is treated in the transaction depends on whether there is an existing lien, the property's value, and the construction loan structure. Merchants Home Lending can review your existing land and determine the appropriate financing approach.

7. What credit score do I need for a VA construction loan?

The VA itself does not establish one universal minimum credit score for construction loans, but individual lenders can set their own requirements. Construction lenders may also have stricter underwriting standards because they are financing a property that has not yet been completed. Merchants Home Lending evaluates credit along with income, debt, assets, entitlement, and the overall construction project. 

8. Can I use my VA loan benefit more than once to build a home?

Yes, in many cases. Using your VA benefit previously does not automatically make you ineligible for another VA loan. Your remaining or restored entitlement, current VA loans, and the new property's requirements must be evaluated. Merchants Home Lending can review your Certificate of Eligibility and existing VA loan history to determine whether you have sufficient entitlement for another construction project. 

9. Can I choose my own builder for a VA construction loan?

You can select a builder, but the builder must satisfy the lender's requirements for the construction program. Licensing, insurance, experience, construction documentation, and the ability to complete the project are important considerations. Merchants Home Lending can review your proposed builder and project documentation before construction financing moves forward. 

10. Does the builder have to be VA approved?

The builder must meet the applicable VA and lender requirements for the construction transaction. Builder approval is an important part of the process because the lender needs to verify that the contractor can complete the project according to the approved plans and construction contract. Merchants Home Lending can help borrowers understand the builder documentation required for their loan.

11. Can I use a VA construction loan to build a custom home?

Yes. A VA construction loan can be used for an eligible custom built primary residence. The proposed home, plans, construction contract, builder, appraisal, and borrower qualifications must meet the applicable requirements. Merchants Home Lending can help Veterans evaluate the financing before they commit to the construction project.

12. What costs are included in a VA construction loan?

Eligible acquisition costs can include documented construction costs, the balance owed on the land in applicable transactions, and certain other construction related costs such as permitted interest and contingency reserves depending on the loan structure. The maximum loan is generally tied to the lesser of the VA reasonable value or eligible acquisition costs, plus the applicable funding fee. 

13. What is a VA one time close construction loan?

A VA one time close construction loan combines the construction financing and permanent mortgage financing into one closing. The permanent financing is established before construction begins and becomes the permanent mortgage when construction is completed. This can reduce the need for a second closing compared with a two time close structure. 

14. What is the difference between a VA one time close and two time close construction loan?

A one time close combines construction and permanent financing into the same closing. A two time close uses an interim construction loan first and then a separate VA loan to establish permanent financing after construction. The better structure depends on your project, lender availability, costs, and financial circumstances. Merchants Home Lending can help you understand which financing structure may fit your situation. 

15. What are the interest rates for VA construction loans?

VA construction loan rates are determined by the lender and can differ from rates for standard VA purchase loans. Your rate can depend on market conditions, credit profile, loan amount, construction structure, and other loan characteristics. Merchants Home Lending can provide current pricing based on your specific construction scenario rather than quoting a generic rate.

16. Do I make mortgage payments while my VA home is being built?

Payment arrangements depend on the specific construction loan structure. Some VA construction programs use an interest reserve or other structure to manage construction period payments, while other programs may require payments during construction. Merchants Home Lending can explain the payment structure, costs, and obligations associated with your specific VA construction financing. 

17. How long does it take to build a house with a VA construction loan?

The timeline depends on the home design, permits, builder, location, inspections, weather, and complexity of the project. There is also a separate period required for loan approval and closing before construction begins. Merchants Home Lending recommends getting financing reviewed early so your loan, land, builder, plans, and appraisal can be coordinated before construction starts. 

18. Does a VA construction loan require an appraisal?

Yes. The appraisal is particularly important because the lender needs to establish the expected value of the completed home. For construction loans, the appraisal can be performed based on the proposed plans and specifications, with required inspections and documentation completed as construction progresses. Merchants Home Lending coordinates the appraisal requirements as part of the construction financing process. 

19. Can I refinance a construction loan into a VA loan?

Yes. VA rules allow certain interim construction loans to be refinanced into permanent VA financing through a two time close structure. The Veteran, completed property, loan, and refinancing transaction must meet applicable VA requirements. Merchants Home Lending can evaluate your construction loan and completed property to determine whether permanent VA financing may be available. 

20. How do I apply for a VA construction loan?

Start with a VA preapproval and have your land, builder, construction plans, and estimated project costs ready for review. Merchants Home Lending can evaluate your VA eligibility, income, credit, entitlement, and proposed construction project to determine your financing options. Getting started early can help identify potential issues with the builder, land, appraisal, or project budget before construction begins.

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