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Frequent moves are part of military life. Relocating can be taxing and stressful on military members and their families. But once they are settled and ready to commit to building a new house, that process can bring on stresses of its own. With a VA One-Time Close Construction, eligible service members can take advantage of the simplified loan program that allows them to finance the construction, lot purchase, and permanent mortgage, all with a single loan.
The VA One-Time Close Construction offers the most appealing aspects of VA financing such as no money down financing and low interest rates. But it goes one step further for borrowers building a new home or purchasing a manufactured or modular home. It eliminates the redundancy of a second closing so borrowers don’t have to worry about requalifying or incurring additional costs.
Updated VA OTC Program overlays and eligibility include:
Site-Built, Modular and Manufactured homes:
Maximum of $250,000 disbursement at closing for land acquisition or payoff.
Building permits (where required by the jurisdiction):
Site-Built and Modular home – applicable building permits to be obtained prior to closing.
Manufactured home – applicable building permits to be obtained prior to closing when the initial disbursement is greater than $75,000.
A minimum five percent (5%) contingency of the total cost to construct be built into the contract price. The contingency is not required for No Draw manufactured Home Transactions.
Provides construction financing, lot purchase, and permanent loan
Single closing reduces closing costs and paperwork
Permanent portion of the loan approved before construction begins
Construction portion also underwritten and approved
No payments due during construction
No requalification once construction is complete
Up to 100% financing through VA (funding fee may be financed into the loan)
Interest rate protected during construction
15 year and 30 year fixed term options
620 minimum qualifying credit score
One unit stick-built house, new manufactured, multi-wide housing, modular homes, PUDs, Barndominium
Primary residence only
Save Money
The single-closing program means one appraisal, one set of closing costs, one underwriting and qualifying process, which eliminates the time and expense of a second closing.
No Payments During Construction
Paying rent for another place to live during the construction phase can place a burden on the borrower. With this program, once the loan is finalized, the payments don’t start until the home is complete.
No Re-Qualification
Once the closing is complete and the loan is in place, borrowers don’t have to worry about re-qualifying once the home construction is finished.
Locked In, Low Interest Rates
The competitive interest rates of the VA One-time Close Construction are locked in prior to the closing and before the building process begins, giving borrowers an added sense of security knowing rates won’t increase during construction.
As with any VA loan the borrower must be a qualifying active duty member of the U.S. military, veteran, or surviving spouse. A Certificate of Eligibility (COE) is required. Other requirements of this program include:
Borrower cannot perform any of the work
Builder must provide a one-year VA Builder’s warranty
General Contractor must be registered with the VA
General Contractor must carry sufficient insurance through a current general insurance liability policy
VA regulations require periodic inspections of properties under construction
Borrowers will also need to meet the income, asset, and minimum property standard requirements of VA loans. Eligible property types include the following, and must be the borrower’s primary residence:
One-unit stick built house
New manufactured double or triple wide housing (single wides are not allowed)
Modular homes
PUDs
Barndominium
Inspections are conducted during the construction process to ensure that all onsite and offsite improvements have been acceptably completed according to the construction exhibits on which the VA value estimate is based, and meet the VA Minimum Property Requirements (MPR’s).
After the housing market decline in the last decade, the way new construction loans are funded changed. Prior to the recession, builders were more able to access capital for new construction projects, and therefore funded much of the upfront production costs themselves. Today, many homeowners hoping to build a new home must obtain their own financing.
The VA one-time close construction loan allows the veteran to lock in the interest rate at the time of approval before construction begins, and that rate is good until it converts to the permanent loan.
Not only is this loan program valuable for financing new construction on a traditional home for active duty, reservists, and veterans, but borrowers may also use the construction to permanent loan to finance Specialty Adaptive Housing construction projects as well. Military members with severe service-connected disabilities often need special adapted homes.
This one-time loan could be used to:
Construct a specially adapted home on land to be acquired
Build a home on land already owned if it is suitable for specially adapted housing
As the housing market continues to steady, veterans and active service personnel can take advantage of lower their interest rates through this program by refinancing in one of two ways. Homeowners who already have an existing VA home loan can reduce their monthly payments or shorten the term of their loans through a refinance VA loan program. Once the construction loan is converted to a permanent loan, and when interest rates lower, some homeowners may find it beneficial to refinance into another VA loan program to take advantage of lower interest rates and lower funding fees for some loans.
If the VA One-Time Close Construction is not an ideal fit for a particular scenario here are a few other construction and renovation products to explore:
For large scale renovation projects, including structural updates: FHA 203(k) Renovation Loan
Streamlined refinance option for those with VA eligibility: VA Interest Rate Reduction Refinance Loan (IRRRL)
Another all-in-one government-backed construction loan option: FHA One-Time Close Construction
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