Get Your Dream Home Built in Texas with a VA Construction Loan

If you’re a Texas veteran looking to build your perfect home, a VA construction loan may be the ideal option. With a VA construction loan, you can purchase land and finance the construction of a new home in Texas without needing a down payment.

Getting approved for a VA construction loan in Texas requires meeting all the normal VA loan requirements, like satisfactory credit history, income, and service requirements. You’ll also need to work with a VA-approved lender and builder. While VA construction loans can be challenging to obtain, they offer Texas veterans a great chance to build their dream home with no money down

What is a VA Construction Loan?

A VA construction loan is a mortgage that lets eligible veterans and service members finance the building of a new home on land they already own or plan to buy.

These loans help veterans in Texas cover the costs of purchasing land and constructing a custom primary residence without requiring a down payment. VA construction loans are structured as short-term loans that are later refinanced into a permanent VA mortgage once construction is finished.

VA Construction Loan Uses

Veterans can utilize a VA construction loan in Texas to build a single-family home on land they own or intend to purchase to immediately start construction on. However, VA guidelines prohibit buying land with a VA loan unless you start building right after buying.

This restriction aims to prevent veterans from land speculation or sitting on empty property So you either need to already own land or buy it as part of your construction loan closing

VA Construction Loan Requirements

To qualify for a VA construction loan in Texas, you must meet all the standard VA home loan requirements, including:

• Serving the minimum time on active duty
• Having a qualifying credit score
• Meeting VA debt-to-income ratio limits
• Having sufficient residual income
• Using the home as your primary residence

On top of the standard VA loan criteria, you’ll also need to:

• Find a VA-approved construction lender willing to offer these specialized loans. Many lenders shy away from the risks of construction loans.

• Work with a licensed and insured VA-accepted home builder. The VA doesn’t approve builders but requires them to register and get a VA builder ID number.

• Submit full construction plans and specifications to your lender to underwrite the loan.

• Get the property appraised based on the construction plans before closing on the loan. The appraisal determines the home’s value once built.

How Does the VA Construction Loan Process Work?

Every homebuilding project is unique, but the general VA construction loan process follows these steps:

1. Choose a VA construction lender. Finding a lender willing to provide VA construction financing can be tricky. Ask around, as options are limited.

2. Pick a VA builder. Research VA-approved builders with successful track records constructing quality homes. Provide their registration information to your lender.

3. Submit construction plans. Provide your lender with comprehensive construction plans and specifications for underwriting and appraisal.

4. Get a VA appraisal. The lender will order an appraisal of the planned home based on the building plans. This determines the home’s value once built.

5. Close on the loan. After the VA issues a Notice of Value on the planned home, you can close on the construction loan before building starts.

6. Start construction. After closing, the lender will issue periodic payments to the builder as construction hits agreed upon milestones.

7. Final inspection. The VA requires a final inspection when construction is complete before you move in to ensure the home was built according to the approved plans.

8. Convert to a permanent VA loan. Work with your lender to refinance the construction loan into a traditional permanent VA mortgage once your home is finished.

Turning a Construction Loan into a Permanent VA Mortgage

VA construction loans are short-term financing meant to be refinanced into a regular 30-year VA mortgage after the home is built. You’ll need to meet all normal VA underwriting standards when applying for the permanent financing.

There are two main options for refinancing into long-term VA financing – a VA purchase loan or VA cash-out refinance:

VA Purchase Loan

• Lower loan amount – lenders will lend the lesser of the home’s appraised value or the construction payoff amount.

• No cash back at closing – you can only borrow enough to pay off the builder.

VA Cash-Out Refinance

• Potential for higher loan amount – borrow up to 100% of the home’s appraised value.

• Chance for cash back – if the home appraises for more than construction costs, you may be able to get cash back.

A cash-out refinance lets qualified Texas veterans tap into any equity they have in the newly built home. This can help cover some upfront construction costs.

Alternative Ways to Build a Home with a VA Loan

VA construction loans can be difficult to find because many lenders see them as too risky. If you can’t find a lender willing to do a true VA construction loan, here are a couple alternative options for building a home with your VA benefits:

Get a Traditional Construction Loan

If you can’t find a VA construction loan, consider getting a conventional construction loan from a builder or local lender first. This will likely require a down payment. Then refinance into a VA loan after completing construction.

Use a One-Time Close Construction Loan

Also called a construction-to-permanent loan, this option lets you close on a single loan upfront that covers both construction financing and the permanent mortgage. While not very common, this streamlines the process into a single closing.

Buy Land and Get Two Separate Loans

Another option is to buy land with a traditional mortgage first. Then get a separate short-term construction loan and build. Finally, refinance the construction loan into a VA mortgage.

Use a Renovation Loan

If you buy a fixer-upper with a VA loan, you may be able to roll renovation costs directly into your main mortgage depending on the lender, typically covering repairs up to $35,000.

Finding a VA Construction Lender in Texas

The first hurdle to getting a VA construction loan in Texas is finding a lender that offers this kind of financing. Here are a few tips for locating VA construction lenders in your area:

• Ask builders for recommendations.

• Search online for “VA construction loans in Texas”.

• Check with community banks and credit unions.

• Search the VA’s list of approved lenders in Texas.

• Talk to fellow veterans who have built homes recently.

• Contact VA mortgage professionals for advice and referrals.

While challenging, it is possible to find Texas lenders willing to do VA construction lending. Being flexible on terms and shopping around can increase your chances of approval.

Choosing the Right VA Builder in Texas

Unlike lenders, the VA doesn’t approve builders. However, they do expect VA builders to obtain a VA builder identification number to construct homes bought with VA loans.

Here are some tips for finding a reputable Texas contractor for your VA construction loan:

• Verify they have a valid VA builder ID number.

• Choose an experienced builder familiar with VA guidelines.

• Look for VA construction specialists.

• Check online reviews and talk to past clients.

• Ask to see examples of previous VA projects.

• Make sure they carry proper insurance.

Take time to research builders thoroughly. Your VA lender can also help guide you. Being picky can pay off to find a builder you trust.

Meeting VA Construction Guidelines in Texas

When building a home with a VA construction loan in Texas, you must follow all VA property guidelines and minimum property requirements, including:

Minimum Property Requirements

The home must meet HUD minimum property standards ensuring basic safety, soundness, and livability. Common requirements include:

• Professional pest inspection showing no active infestations

• Proper electricity, plumbing, ventilation, roofing

• No severe structural issues

• Lead-based paint rules followed

• Handrails when needed

• No excessive cracking or deterioration

Zoning and Building Codes

Your Texas home must comply with all local zoning ordinances and building codes. Failing inspections or not obtaining proper permits can cause issues.

Construction Plans

VA lenders need to review and appraisers need to see comprehensive construction plans covering all details of your project. Missing info can delay approvals.

Following VA rules ensures your home meets quality standards. Your builder should be knowledgeable of all requirements.

VA Construction Loans in Texas – The Bottom Line

Building a custom home in Texas with a VA construction loan lets eligible veterans and service members finance their dream homes without a down payment.

While finding a willing lender is the biggest hurdle, VA construction loans offer huge benefits if you want to act as your own builder. Putting in the work to find a lender and builder you trust can let you create your ideal home with $0 down.

I know the construction loan process inside and out after using a VA construction loan to build my own home