Wait, you can invest with a VA construction loan in 2024?
That’s right!
But how can you do it?
Those of us here at Awesomely got you covered with a comprehensive guide on what a VA construction loan is, the requirements, advantages, disadvantages, and creative ways to leverage it for long-term financial success.
Whether you’re a veteran or an active-duty service member, this information will help you make informed decisions about using your VA loan benefit to build your dream home and create wealth for you and your family.
Let’s get started!
What is a VA Construction Loan?
If you’re a veteran, a VA construction loan can give you a financial solution for covering the expenses of purchasing land and building a home.
Unlike traditional mortgages, this type of financing does not provide a lump sum upfront. Instead, the funds are disbursed in stages as construction milestones are achieved.
The loan amount can be utilized for purchasing the land or lot and for the actual construction of the home, along with the loan funding fee if necessary.
VA construction loans are available to eligible veterans; but finding lenders that offer $0 down can be challenging as this type of loan isn’t widely available in today’s market.
Don’t worry!
There are still VA Construction Loan options out there and with our help you’ll be on your way to making building your dream home a reality using your VA loan benefit.
VA Construction Loan Requirements for 2024
COE
To qualify for a VA construction loan you’ll need to a get a Certificate of Eligibility (COE) from the military or VA.
For active-duty service members, you’re considered eligible for a VA construction loan when you reach 90 days of continuous service.
For veterans, the minimum active-duty service requirements vary depending on the time period in which you served.
Those who served after 1990 will need at least 24 months of continuous service with exceptions only requiring 90 days of continuous service for those who were discharged due to hardship or disability.
National Guard will need at least 90 days on active duty and Reservists at least 6 years of continued service.
Surviving spouses are also eligible if their spouse died while serving on active duty or because of a disability that was related to their service.
Make sense?
Property
The VA has safety in mind when it backs a home loan and institutes minimum property requirements (MPRs) to ensure this.
Inspections and appraisals will be required to guarantee the property is a sound investment for both you and the lender.
Working with a realtor or construction company familiar with VA Construction Loans can help you to avoid any potential issues with property quality and condition.
Occupancy
Generally, you will need to occupy your new home within 60 days of construction and live in it a minimum of 12 months.
Advantages of VA Construction Loans
- You don’t need a down payment because the VA backs the loan, but keep in mind — putting money down can reduce the VA funding fee.
- You don’t need to get private mortgage insurance for VA Construction Loans.
- You’ll have the benefit of a lower annual percentage rate than with a traditional loan.
- You’ll have more flexible credit requirements and a higher allowed debt-to-income ratio, which increases the likelihood of getting approved for a loan.
Disadvantages of VA Construction Loans
- You’ll have to navigate a complicated and lengthy process. Having an experienced lender on your side is essential to helping you make it over the finish line.
- You must meet eligibility requirements and might come up against restrictions. VA Construction Loans have many restrictions, including that you can only use them for a primary residence.
- You may need to pay fees unless you’re exempt due to a hardship or disability, including a lender and/or financing fee.
- You’ll need to meet occupancy requirements before you can use the home as an investment.
How to Invest in Real Estate with a VA Construction Loan in 2024
Just because there are restrictions on the VA Construction Loan doesn’t mean that you can’t use these loans to help you gain financial success.
Here are just a few creative ways you can leverage your new home to create long term wealth for you and your family.
House Hacking
House hacking simply means using your home to make money.
When you use a VA construction loan, you must make the home your primary residence for at least 12 months but there are no restrictions against having other people share that home with you.
In the simplest scenario, you could take on renters through roommates to help you make a monthly profit over and above your mortgage payment.
Multi-Family Structures
Alternatively, you could build a duplex, triplex, or quad multi-family home.
As long as you’re living in one of the apartments, you’re using the home as your primary residence and are meeting the VA Construction Loan requirements.
Long Term Flipping
If you spend any time watching DIY house flipping shows, you’re probably already familiar with the concept of flipping.
Usually this involves buying a house that needs to be renovated, making some quick repairs, and putting it right back on the market.
But how do you flip using a VA Construction Loan, especially with the restrictions and requirements involved?
In a long term flip the mindset is not to renovate as quickly as possible. Instead, you can make improvements overtime that add to the home’s value and your eventual profit.
If you build a new home, you might want to consider adding features over time that increase the value so after your residency requirement is up you can sell the home for more than the cost of your investment.
How to Invest in Real Estate with A VA Construction Loan FAQs
What credit score do you need for a VA construction loan?
Individual lenders will have unique requirements for a minimum credit score, but generally most lenders want to see you at a 620 or above.
What is the interest Rate for a VA construction loan?
Just like traditional home loans, VA Construction Loan rates vary.
They typically range from 2-3% for first time VA loan borrowers.
What is the debt to income ratio for a VA construction loan?
Your debt to income ratio is the amount of debt you have to pay each month divided by your income.
For those applying for a VA Construction loan, lenders want to see applicants at less than 40%.
The Bottom Line: Investing with a VA Construction Loan
There you have it: now you know that a VA Construction loan can be used to invest in real estate if done the right way.
It’s one of many ways to kickstart your real estate investing journey.
