If you are a first-time homebuyer and a veteran, the VA allows you to obtain a mortgage for new construction. However, many veterans are unaware that the VA does not provide the actual loan. Instead, the VA insures the loan with banks and mortgage lenders in the event you default on your mortgage. Therefore, you must find a lender who is willing to approve you for a construction loan.
A Closer Look at VA Construction Loans
The Department of Veterans Affairs states you can use a VA-backed construction loan to buy or build a home. You can also refinance a home using a construction loan. However, most lenders consider construction loans high risk since it does not convert to a permanent loan until construction is complete. The upfront construction costs cause many lenders to pass on these types of loans, including VA-backed loans. You might be thinking how lenders can pass on any VA-backed loan.
Although a bank or mortgage lender might be approved to issue mortgages backed by the VA, it is not a requirement. Banks and lenders can decline your application for a construction loan or any other type of mortgage, even when they are insured by the VA. Keep in mind that you must find a lender who is ready to approve you for a VA construction loan.
Finding VA Construction Loans
It can be tricky trying to find a lender willing to offer you a construction loan, but it is not impossible. Many lenders offer construction-to-permanent loans where you finance the cost to build with a developer or a homebuilder. Once the construction is complete, you can roll the loan into a permanent mortgage backed by the VA. In this scenario, the skill of a qualified VA loan specialist comes in handy. If you cannot find a lender willing to offer you a construction loan backed by the VA, a loan specialist can.
The VA Construction Loan Process
Since you can use your VA entitlement for a construction loan, you must meet all the minimum eligibility requirements outlined by the Department of Veterans Affairs. You will need your VA certificate of eligibility. You must meet minimum property requirements set forth by the VA. And, you also must meet the minimum credit score requirements, debt-to-income ratio requirements and the minimum down payment requirements set forth by the VA.
The VA does not have a minimum credit score requirement for qualified veterans. However, lenders want to see your credit score at 620 or better before they approve you for financing. The VA also uses a debt-to-income ratio of 41 percent as a benchmark. However, lenders can use an overlay to allow for higher or lower DTI ratios based on their perception of your level of risk as a borrower.
Another point to consider is VA-construction loan lenders can require higher down payments than the VA minimum down payment guidelines. Lenders are allowed this flexibility since they assume all the risks during the construction process. Here again is where a VA loan specialist can work out the exact details of a construction loan.
Mortgage Originator Jimmy Vercellino, specializing in VA loans, helps veterans use their VA loan benefit to their greatest advantage. For more details call us at 619-350-1951 or visit our site http://sandiego.valoansforvets.com/
The views expressed here are those of the individual author and do not necessarily represent those of First Choice Bank (NMLS #: 177877) and First Choice Loan Services Inc. (NMLS #: 210764), 959 South Coast Drive, Costa Mesa, CA 92626. Equal Housing Lender. www.fcloans.com/disclaimer/