Build Your Dream Home Using Your VA Loan

1. Life is good.

You finally decide to take the next step with your VA loan in order to make this dream a reality.  You apply for construction financing, and realize your local bank is requiring you to put at least 20% down.  What?  How could this be?  “I am a veteran and I have my certificate of eligibility!” you shout. “I have been told that I qualify for 100% financing!”  “Show me the money!”  Unfortunately, nobody is listening.

Building a new custom home these days is much more difficult than it used to be.  With millions of homes IN foreclosure, and banks tightening their lending guidelines, we ponder the question: How can a person take advantage of their VA loan benefits and still get the closet space with the man cave?

In a VA loan transaction, BANKS LOAN THE MONEY, and the VA INSURES the transaction.  Because the banks have the money, and are essentially taking the risk, they decide the terms and amount of risk they are willing to accept.  In most cases, banks will error to the side of caution, and tend to be MORE conservative than VA loan guidelines.  So when the bank says they need 20% down to build a new home, this is why.

1. Keep reading for the answer.

Understanding builder mentality- (The key to your success)

1. In doing so, your offer will be very attractive and the builder WILL WANT to do business with you.

Making an offer a builder can’t refuse.

1. After all, you have nothing to hide, and doing so sets you apart from other shoppers that waste time.
2. 2. Your next step is putting up a reasonable deposit for the new home. This will be something that both you and the builder agree is fair.  Use your head and be smart.  Your objective is putting up some cash to make your agreement binding but don’t stretch yourself too thin.  Use the fact that your already qualified for financing as a reason to keep the down payment on the small side.  Contact a realtor or real estate attorney to help you with these agreements.
3. 3. If you own the land free and clear, or have plenty of equity, you can use this as a bargaining chip to “sweeten the deal” and add security to the builder considering your proposition. Just remember, if you tie up the land, make sure you have expert legal advice on your side and understand the ramifications of your actions.  If you fail to plan then plan to fail.
4. 4. Another topic for negotiation is paying the interest that accrues during the construction of the home. Traditionally, the buyer is responsible to cover the interest payments during the construction period.  I recommend offering to cover the accrued interest upfront in your negotiations.  In doing so, you eliminate the only other objective many builders have by covering the loan payments while the home is under construction.  If you enter an agreement to pay interest, double check the cost breakdown on the home and make sure your not being double billed.  You may be able to LOWER the price of your home.

But I don’t have any land!

1. Create value and eliminate risk.

Target a home that is in the very early construction stages. Just after ground breaking is ideal.  The sooner you locate a new home the better your chances for making custom changes.  The builder may ask you to cover the costs for any design changes you make.  Those costs may be architectural and engineering; but overall, paying for these changes will be much less than putting 20% down.

Once your home is about 60 days from completion, contact your VA lender to start the closing process.

PS.  I think the man cave is ready.

About the VA Loan Store: This is a veteran owned and operated company specializing in VA Lending. With over 20 years of combined experience, the VA Loan Store founders have been published writers on www.military.com, and featured speakers on mortgage financing across the country. Their proven, “no-nonsense” approach to lending, has made the VA Loan Store a trusted resource for government loans nationwide. Find more information check out www.VALoanStore.com or www.NOBSVALoans.com"