VA Loans: New Build vs Existing Home
VA loans are not limited to purchasing existing single-family homes; VA entitlements and loan guarantees can also be used for other purposes such as purchasing condos, refinancing
existing mortgages, making residential improvements, and financing new construction projects. Building a new home can be a very appealing option for veterans who would like to have more control over their choice of housing; to this effect, VA loans can be used for spec homes,
custom-built residences or even new construction projects in gated communities. The no-money down and loan guarantees offered by the VA apply to new construction, but not all lenders will work with veteran borrowers in this regard.
One problem with VA loans and new construction projects is that home builders tend to demand money upfront. A few builders familiar with the VA loan program will work with veterans and active duty families who wish to build a new home; this is when well-connected mortgage brokers and lenders have an opportunity to shine if they have a working relationship with builders who understand that VA loans forego down payments.
There are options to process what is known as a "true" VA construction loan, which involves drawing funds from the mortgage principal and making payments to the builder as the
construction advances. Another method involves approving veteran borrowers for short-term
construction loans that will transform into full VA loans once the project is completed and papers are signed at the closing table.
VA loans for construction projects must satisfy all the requirements of non-construction loans; this means that they will need VA appraisals, special processing and certificate of eligibility.
Additionally, the builder must submit a certificate of completion and a construction warranty of at least one year.
The process of purchasing an existing home with a VA loans is a lot more streamlined and
traditional. The same VA lending standards will apply, but applicants do not have to worry about issues such as short-term construction financing.
Veterans who prefer to purchase newly built residences may be better off by looking into
residential communities being developed by local or national builders. The options in this case may include purchasing model homes or waiting until a new phase or section of the
neighborhood is completed; this will require working closely with real estate professionals and VA lenders so that the purchase contract can be signed quickly to avoid other prospective buyers from submitting competing bids.
In active housing markets such as Phoenix, veterans have more choices for purchasing new construction homes due to the rapid pace of development in the region. Quite a few
master-planned developments and gated communities with neat amenities such as nature
preserves, swimming pools, fitness centers, and playgrounds are being completed in 2017.