VA Construction Loan: How to Build and Renovate with a VA loan in 2024

In 2024 Veterans are building and renovating homes more than ever thanks to the VA construction loan and VA renovation loan. When you can't quite find the home you're looking for you should consider either building a home or renovating a house to make it the home you want. Veterans and Civilians are considering building homes and renovating homes in 2024 because of fluctuations in prices for homes, limited supplies in desirable areas, and competition in desirable areas. It's not easy finding a home great for you and your family. Interior design and decorating can only take a house so far. VA construction loans and VA renovation loans are unique, backed by the VA, and provided by VA Lenders who understand them and how they can help you get the home you want. To help Veterans understand VA construction loans and VA renovation loans better, it's helpful to know what they aren't.

What VA construction loans and VA renovation loans aren't?

1. They aren't variable rate loans.
2. They aren't temporary loans providing temporary financing.
3. They aren't for investment properties.
4. They aren't for civilians but there are spousal benefits.

What's the difference between a VA Construction Loan and VA Renovation Loan?

A VA construction loan is a permanent VA loan with one closing that covers the cost of building a house and the land with one closing and a fixed interest rate. The difference is that the VA One time close construction loan is for building a new home on raw land and a renovation loan is for renovating an existing home. The VA construction loan process requires you to have land or buy land in conjunction with your construction loan approval. Having land already helps you qualify because it can count as equity. It also reduces your loan risk for the lender which can help create more desirable terms. According to Jason Noble, COO of Security America Mortgage, it takes on average 10-12 months for a Veteran to get a VA one-time close construction loan and move into their new home. With a VA renovation loan, you'll move in right after closing so the house must be habitable.

What's easier between a VA construction loan and VA renovation loan

That's a loaded question that is often thought about and compared. The answer is based on your unique situation and where you are in the process. Typically a VA renovation loan would be easier but there are many variables. The saying "one size doesn't fit all" is very true here. Having options it's what's important and going with the option best for you and your family at that time is what makes sense. If you're building a home then you are likely either renting a home or owning a home already that you'll stay in until your new home is finished. A VA renovation loan can be closed much faster than a VA construction loan and might provide you with what you need much faster. In general, it's going to be an easier process to close on a VA renovation loan.

What are the challenges to getting a VA construction loan in 2024?

Jason Noble says the biggest challenge to getting a VA construction loan is finding a good builder who is reliable and trustworthy. Other challenges include trying to close on land at the same time you have your builder and plans approved for closing. Often Vets are under contract to buy land and don't have the allowed time necessary to also get a builder, approved plans, and approved financing. A VA Renovation loan allows you to buy a property for no money down with repair and remodeling costs built into the VA loan. The VA renovation loan allows a Vet to purchase a property that doesn't meet some minimum property requirements as long as those issues are resolved after renovation.  However, the home must be habitable when you close. Oftentimes in the past Vets couldn't buy a fixer-upper b/c of this issue.

Situations that might make a VA renovation loan desirable include:

1. The house you want to buy fails inspections and doesn't meet the minimum property requirements MPR and the seller doesn't want to make repairs or updates.
2. A limited supply of housing that meets your needs creates the need to get something that can be rehabbed to meet your needs.
3. You can move in sooner to a home you remodel vs. a home you build.

The value of the property is verified with an appraisal of the final plans for renovation and current home value. Comps are needed by the VA appraiser to justify value. Extravagant remodels that your neighbors don't have might not create the value you need and might not be approved.

13 Common factors for VA renovation loans and VA construction loans

1. Both require a contractor and/or builder to be registered with the Department of Veterans Affairs.
2. Both are guaranteed by the VA.
3. Both require a VA Lender to approve the builder or contractor.
4. Both require a certification of completion.
5. Neither requires a down payment.
6. Both require a VA funding fee unless you are approved for a waiver.
7. Both allow your closing costs to be paid for by the seller up to 4%.
8. Both require you to live in the home as your primary residence.
9. Neither or for investment properties.
10. BAH income can be used to help qualify.
11. Both types of va loans require your plans to be approved.
12. An appraisal will be done that takes into consideration the property value based on completed plans.
13. Loan amounts may not exceed Conforming Loan Limits as published by the FHFA.

Important points about VA Construction loans and VA Renovation loans

• The Department of Veterans Affairs doesn't make this loan or any VA loan.
• The VA construction loan program and VA Renovation program are only being provided by a limited number of VA lenders like Security America Mortgage.
• Construction loans that have temporary financing and variable rates that can possibly be converted to a permanent VA loan after the home is completed but this isn't a VA construction loan.
• The VA OTC is the only true VA construction loan because it's a va loan when you close.
• It is possible for a Veteran to get a variable-rate temporary mortgage for construction and when completed seek a permanent VA loan. This comes with interest rate risk, volatility, and requalification.
• An appraisal of the property's value based on completed plans is required for both types of loans. Additionally, loan amounts may not exceed conforming loan limits established by the Federal Housing Finance Agency (FHFA). Understanding these key points is essential for veterans and eligible service members considering VA Construction loan or VA Renovation loan. By working with knowledgeable lenders and adhering to VA guidelines, borrowers can navigate the loan process effectively and achieve their homeownership goals.

Eligible Repairs for VA Renovation loans

• Removing an interior load-bearing wall
• Repairing some structural components of the roof
• Replacing the roof can be done as long as the house is habitable while a new roof gets put on.  A roofing inspection and appraisal will mention how much life the roof has left.
• Attached additions expanding the footprint of the home require a second-level project review prior to approval from most lenders.
• Repair/installation of private water systems (Wells)
• Minor repairs to Septic systems
• Recreational/Luxury improvements require a second-level project review from most lenders.
• The Department of Veterans Affairs requires any alterations and repairs to be ordinarily found on similar properties of comparable value in the community.

Ineligible Repairs for VA Renovation Loans

• Adding a second story or changing the elevation is not permitted
• Oil Tanks (repair, removal, remediation)
• Any repair/installation of private waste management system (Lagoon, Cesspools, Pits, etc.)
• Major repairs or installation of septic systems
• Mold Remediation
• Purchasing an existing structure on another site and moving it to a new foundation
• Any repair that will take over 9 months to complete
• Repairs that prevent the borrower from occupying the property for more than 15 days during the renovation period
• Any repair that is done as Self Help

VA construction loans: 10-step guide to the process of building or renovating with a VA loan

1. First pre pre-qualify to make sure you have a very good chance of approval for building or renovating. Make sure you have your COE. Most VA construction loan lenders can pull this for you.
2. Determine the time horizon that makes sense for occupying your new home.
3. Determine if you want to purchase with a VA home loan, renovate with a VA renovation loan, build with a VA construction loan, or utilize an alternative option
4. Utilize a Military-friendly real estate agent to help you find land or a house.
5. If you are building or renovating then hire a VA registered builder or contractor that your Lender approves.
6. Get your plans approved by your lender
7. If you have a long-term time horizon then consider buying land and holding the land until you're ready to build. Typical land loans can be shopped for online and there aren't va loans to buy land alone unless you're in Texas and want to utilize Texas Veterans Land Board.
8. If renovating a home then submit a contract on the home you want that includes the renovation costs based on plans.
9. Close on your VA one-time close construction loan or VA renovation loan
10. With a VA renovation loan you move in after closing and with a VA one-time close you move in when the home is completed.

What kind of house can I build and renovate with a VA loan?

With a VA loan, you can build or renovate various types of houses to suit your needs and preferences. Here are the types of houses you can consider building or renovating using a VA loan:

• Brick and Stick built
• Modular
• Manufactured
• Barndo/Barndominum possible based on lender's discretion
• Renovations and Remodels

It's important to note that regardless of the type of home you choose to build or renovate with a VA loan, it must meet certain standards set by the Department of Veterans Affairs. These standards ensure that the property is safe, structurally sound, and suitable for habitation. Additionally, working with experienced builders, contractors, and VA Approved lenders can help streamline the process and ensure compliance with VA loan requirements.

Conclusion

In conclusion, VA construction loans and VA renovation loans offer valuable opportunities for veterans and civilians alike to build or renovate homes that meet their needs and preferences. These loans provide stability, flexibility, and the chance to create a personalized living space in a challenging housing market. By understanding the differences between these loan options, navigating the challenges involved, and adhering to VA guidelines, borrowers can successfully achieve their homeownership goals with the support of knowledgeable lenders and professionals in the field like Security America Mortgage.  

Security America Mortgage and Security American Realty can help you with all of your home buying, home selling and homebuilding needs. Our goal is to give you first class service. We are a small family oriented company that places your needs and priorities first.  Feel free to start the approval process check out the various types of Houston home loans we have available. Save time and money with a local home grown Houston companies. With easy in house communication between our Mortgage Company and Real Estate Brokerage you’ll be rewarded with an efficient and more cost affective process.  

Bio of Garrett Puckett

Garrett Puckett is a proud American, Author, and CEO of Security America Mortgage. "Serving those who Served" is his mission along with helping as many Military Veterans as possible with home ownership. His Grandfather Charles Dotromont Doriorcourt fought in WW1 and his Uncle Charles Doriocourt fought in WW2. He has many family members who have served in the United States Armed Forces so his affection and appreciation for Veterans is profound.