This blog is part 2 of our 2 part series the VA construction loan and VA renovation loan. Now that we know what these loans are let’s talk about what’s needed to make it work for you. As is the case with most big decisions- you need to know your budget.
What’s Your Home Loan Budget?
What’s your total budget to buy land and build your home? Is the budget reasonable? Until you know your budget, it’s important you hold off on working with a real estate agent. As with most big purchases, it’s important to interview and meet with many contractors.
Vetting Contractors and Builders
Not only do you want to make sure that they can build what you want, but will they provide the necessary paperwork on time to facilitate what VA and the lender will require? For example, many manufactured home dealerships want to sell the home, but VA requires them to be responsible for:
- Prepping the land
- Moving and setting the house on the property
- Having the home move-in ready.
- Having paperwork from the contract that not only exemplifies that they have the financial capacity to build the house but the experience and licenses too.
- Breaking down of costs associated with different aspects of the build
- Outlining any equipment associated with being installed into the home.
All that information solidifies the costs and bid for the builder and provides little wiggle room for someone to under-bid a job and create a problem for the Veteran later down the line.
For that reason, we like to offer Veterans and their preferred contractor’s examples of all the paperwork that the contractor/builder may have to provide. This way, we can confirm that they can provide all the required items and not waste any one’s time.
Shopping for Land
Once the buyer has their budget and costs understood it’s time to start looking for land. By this time, the Veteran should have picked out with their builder or dealer the plans and specifications for the project.
Those can take several weeks to months to complete, and those will need to be complete and available for the contractor to provide a finalized bid once the Veteran has secured a contract to buy land.
Loan Origination Process
The lender will need the final proposal, plans, and specs to begin origination of the loan. Then it’s off to the races. For the rehab VA, most times the Veteran doesn’t know they need a VA loan until after they have found a home and see that it needs work to qualify for the loan or to meet the Veterans needs. In this case, the Veteran will need to quickly go through the process of interviewing and vetting Contractors much the same as outlined initially for those looking to build a home. This is to finalize the budget of the rehab to get this Rehab loan originated.
Steps to Closing
With the application signed and the project and contractor paperwork in, the appraisal goes through the VA. Other typical steps of underwriting the Veteran for qualifying for the loan is the same as a standard VA mortgage.
Like the standard VA program, the loan papers are ready for signature (Veteran and spouse) after it clears underwriting. When the loan funds the loan will initially send the money to escrow to purchase the property.
Remaining funds that would be utilized to build a home or rehab a house will then be in a trust with the lender or their construction Dept. They will then disperse the funds (as disclosed to the Veteran and Contractor/Builder) during the process of underwriting.
The purpose of dispersing funds is to ensure that the project goes as planned and stays on budget.
Upon completion, the Veteran’s loan is now ready to fall into it’s final VA loan term. If the Veteran had picked the 30yr fixed and had locked the rate in at the beginning of the process, then that is the final loan term they will get through some Veterans may see value in waiting to lock till after the completion of the construction of the home.
Either way, whether it takes 6 months, 9 months or up to 12 months, the Veteran doesn’t have to requalify for that Final VA loan. The loan converts from a construction phase to the VA final loan.
If you’re a Veteran, thinking about buying a home and using your VA benefit, working with a company that can offer both standard VA or rehab and construction VA can be a big plus. It’s not uncommon for a Veteran to begin the process of shopping and to buy a home to have to pivot and switch to a VA Rehab loan or decide to Build.
There are just a few Lenders that offer Rehab or Construction, and fortunately, we have the experience to do them all. Give us a call, and we would be glad to help you with your VA home loan needs.