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May 03

Your Guide to VA Construction Loans

Reading Time: 4 mins

The housing market and real estate are considerably active today. However, this means the pricing is constantly increasing due to higher demand and increased inflation, making hunting for a home tailor-made to your needs a challenge. Building a house from scratch through a construction loan may be a much better option. 

Conventional construction loans usually require a high down payment and often come with high interest rates. Sometimes, these rates are much higher than mortgages for existing homes, and money lending is more challenging. However, veterans have alternate options and can bypass many of such drawbacks by opting for a VA construction loan 

The Loan Guaranty Service executive director in the US Department of Veterans Affairs stated that the VA limits closing costs and enables veterans to fulfill their dream of owning their house. The VA home loan guarantee ensures competitive interest rates as well. The resulting savings can be huge over the mortgage term. The VA offers various traditional loans, exclusive single-close construction loans, or one-time close (OTC) loans. Here is a guide that will help you better understand VA Single Close or one-time-close (OTC) Construction Loans. 

What Is a VA OTC Construction Loan?

A One-Time Close (OTC) VA Loan finances the construction for veterans or active military officers seeking to build their homes. This type of loan enables borrowers to apply for a single loan, which covers the entire financing for a lot and the actual construction of the house with no down payment required. This permits many military families to fulfill their dream of building their homes with the minimum requirement of liquid finance or cash. This feature makes VA OTC loans a popular choice in military families. In addition, this construction loan is also backed by the VA (U.S. Department of Veterans Affairs). This makes the borrowing process easy compared to traditional loans as it becomes much quicker and more accessible, as a reliable government department is involved to vouch for your credibility.  

Construction loans come in various forms and can be short-term, long-term, high-interest, or even construction-to-permanent. With a one-time construction loan from the VA, your process of applying for the loan and receiving the finance is straightforward. While conventional loan options require the borrower to get separate loans for buying the lot and the construction, the VA OTC Single Close Construction loan is relatively straightforward. It does not require you to fill out separate forms for each type of loan and covers both the purchase of the lot and the construction of the house. 


Benefits of VA Construction Loan

The single-closing program, or one-time closing option, is based on a one-time set of closing costs. This makes the whole lending process significantly quicker and hassle-free. Paying rent for your current home while your permanent residence is under-construction can be burdensome on your pocket. Most one-time closing VA loans do not require borrowers to make any payments in the time period before the completion of construction, facilitating them considerably. Borrowers will only have to complete the documents and loan process once, and they are not required to re-qualify after finishing the construction process.  

The competitive interest rates make the VA One-time Close Construction Loan unique and borrower-friendly. Borrowers also get a sense of security knowing that their interest rates will not increase at all during the construction period of the house, so they can plan their finances accordingly. 


Eligibility Requirements for VA One Time Closing Construction Loan

Like all other VA loans, the borrower for the One Time Closing Construction loan should be an active U.S military member, veteran, or a surviving spouse. The initial step to take when applying for a VA construction loan is to obtain a Certificate of Eligibility (COE) from VA as a veteran or active service member. This certificate can sometimes be obtained through the lender or without the lender’s support. A VA approved lender’s website will explicitly mention all the loan requirements. In addition, you can fill out their online application for a COE (Certificate of Eligibility) which further makes the process quicker and more convenient.  

Some other eligibility criteria that must be taken care of when applying for this type of loan include the assurance that the borrower will not be performing any of the on-site construction work. Builders constructing the house financed through a VA OTC loan will need a one-year VA builder warranty from the client. In addition, the general contractor of the construction requires to be associated and registered through the VA. VA will also conduct periodic inspections on-site, and they will have complete authority to check up on the construction. 

Borrowers will also be checked against specific income criteria to be able to acquire the loan. Eligible property types are also important, and borrowers will be only granted the loan to purchase their primary home. The constructed house should be a one-unit stick-built house and must have double or triple wide housing. Modular and manufactured homes are also accepted by the VA. 



VA loans offer unique and favorable terms and therefore are an excellent option for pursuing home construction if you meet their eligibility criteria. A VA one-time closing construction loan can be your most ideal choice among options of loans provided by the VA. This loan eliminates the hassle of re-approval and makes construction from scratch much easier and less financially challenging.  

Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence. 


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