Construction Loan Rates in Virginia: A Complete Guide for 2023

If you’re planning to build a new home in Virginia, securing financing should be one of your top priorities Construction loans allow you to finance the building of your custom dream home, while offering flexibility not found with traditional mortgages

Just like with any loan interest rates are a major factor when selecting a construction loan. The construction loan rates you qualify for will depend on current market conditions, your financial profile, chosen lender, and more.

This comprehensive guide breaks down everything you need to know about current construction loan rates in Virginia and how to get the best rate for your build.

Overview of Current Construction Loan Rates in Virginia

Construction loan rates fluctuate often based on factors like the federal funds rate Here is a look at current averages for Virginia as of early 2023

• Fixed Rates – 6.50% to 8.25%
• Variable Rates – 6.25% to 8.00%

In today’s rising rate environment, construction loan rates are higher than they’ve been in recent years. But they remain very competitive with other financing options.

Rates for construction-only loans tend to run slightly higher than construction-to-permanent financing. But in exchange, construction-only loans offer more flexibility.

Run the numbers for both loan types to see which option best suits your budget and goals.

How Lenders Determine Your Construction Loan Interest Rate

Construction lenders will assess several factors about your finances to decide the loan rates they can offer:

• Credit score – Borrowers with scores of 740+ qualify for the lowest rates. Scores below 620 may disqualify you.

• Down payment percentage – The more you put down, the better your rate. 20% down offers ideal rates.

• Debt-to-income ratio – DTI below 43% is preferable. Higher DTIs mean higher rates.

• Loan type – Fixed or adjustable rates have differing rate implications.

• Construction costs – More expensive builds may have slightly higher rates.

• Loan term – Shorter terms sometimes have lower rates.

• Property type – Unique properties can impact rates.

Improving any weaker areas of your financial profile makes you eligible for the best construction loan rates.

Shopping Around for the Best Construction Loan Rates

Today’s competitive lending environment means you have options when it comes to financing. Here are some tips for securing the best construction loan rates:

• Get quotes from multiple lenders – credit unions, banks, online lenders, etc.

• Ask about both fixed and adjustable rate options

• Inquire about rate discounts you may qualify for

• Compare fees in addition to interest rates

• Opt for shorter construction terms if possible

• Improve your credit score and lower your debt ahead of time

• Consider increasing your down payment if needed

Taking the time to shop and compare can result in thousands of dollars in interest savings over the full loan term.

What Affects Construction Loan Rates in Virginia?

Many factors influence the rise and fall of Virginia construction loan rates, including:

The Federal Funds Rate – When the Federal Reserve raises or lowers this benchmark rate, construction loan rates follow suit.

Inflation – As the costs of materials and labor rise, lenders adjust rates to cover their risk.

Recession risks – Concerns over a slowing economy lead to higher rates.

Bond market – competition from low-risk Treasury bonds impacts mortgage rates.

Lender competition – More lenders means more rate pressure and discounts.

Home demand – High demand and tight housing supply lead to rate hikes.

Seasonality – Spring and summer see lower rates to spur building activity.

So while you control many rate factors with smart shopping, broader economic forces also play a role.

Locking In Your Rate During the Build

With construction loans, you’ll want to pay close attention to rate locks:

• Short-term locks – lock your rate for just the construction period,Usually 60-180 days.

• Long-term locks – lock your full loan term rate upfront. Fees often apply.

• Float – don’t lock your rate and risk rates rising before you convert to permanent financing.

Weigh the pros and cons of each strategy. Locking longer provides rate certainty but reduces flexibility.

Speak to your lender about the best lock approach for your build timeline and goals.

Choosing the Best Construction Lender in Virginia

While rate is critical, it’s also important to choose the right lender for your needs. Here are tips for picking the best construction loan provider:

• Review lender experience with construction loans and unique builds

• Assess turnaround times for draw releases and inspections

• Look for construction tech and tools to streamline the process

• Verify they handle both construction financing and permanent mortgages

• Check for discounts, rebates, and promotional offers

• Evaluate additional fees beyond just rates

Finding the optimal blend of low rates, great service, and helpful tools leads to construction financing success.

Alternative Financing Options to Consider

If you have trouble qualifying for a traditional construction loan, alternatives like these may work:

• Renovation loans – finance home improvements up to $200k
• Ccrowd lending – get a loan from a pool of individual investors
• Owner financing – have the seller help finance your build
• Home equity loan – use existing home equity to fund construction
• Land loan – finance just the land first, then seek constrution financing

However, run the numbers carefully as these options often come with higher rates, fees, and down payment requirements.

The Bottom Line

Construction loans remain an economical way to build a custom home in Virginia, despite rising rates. Focusing on improving your financial profile, shopping around for lenders, and locking rates at the right time ensures you get the lowest rate possible. Monitor market trends and get pre-approved early before starting your build.