VA Loans and Custom Homes

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There are some key differences between standard custom home loans and custom home for VA loans. If you are a qualified military member interested in obtaining a VA custom home construction loan, make sure to understand all of the VA requirements before you enter into a contract with your builder. Once you have applied for your custom home VA loan, your lender will analyze your application and give you an approval if your request meets their lending guidelines. You will then close on the loan, before your builder actually begins to construct your home.

After you provide written consent to the lender, the amount that the builder needs for the cost of construction is then paid. All of the remaining funds are deposited into an escrow account the lender establishes, for the builder to draw from as your home is being built.

Loan Payments

When you take out a standard construction loan from a bank, you are required to make monthly payments on the interest that accrues from the funds used by the builder to construct your home. With a VA construction loan, you do not have to make any monthly payments at all until your home is completely built. Your first payment will be due depending on the time it takes your builder to fully construct your new home. Construction time can only be as long as one year, per VA guidelines.

One thing to be aware of however is that if the home takes a full year to be built, and the term of your loan repayment was for 30 years, you will only have 29 years to pay the home off from the date you closed on the loan. It is therefore in your best interest to stay in touch with your builder on a regular basis, to make sure they are not having difficulty during any stage of the home’s construction.

If you are able, it is wise to save the money that you ordinarily would be using for your monthly loan payments in an account that pays you interest. This will help to cover any extra time your builder spends constructing your home.

Home Construction

While your home is being constructed, your builder is the one that is responsible for the interest payments on your VA mortgage loan. Since this is an out-of-pocket expense for the builder, it should keep them motivated to complete your home in a timely manner. You should monitor the home’s construction on a constant basis, to make sure the builder meets your standards during each phase of construction.

You should make sure to set aside the money needed to pay the VA loan funding fee, which is due within 15 days after you close on your loan. Contact your lender if you do not know the exact amount required to cover this fee. Lastly, you are not required to pay any fees such as builder's hazard insurance, or title update fees during construction. Be sure to set money aside for incidentals because more often than not, more money is needed to close your loan.