VA Construction Loans, Requirements, Draws and One Time Close
A VA construction loan helps eligible Veterans finance land and a custom build, then converts to a permanent mortgage at completion. Expect potential zero down, no monthly mortgage insurance, staged draws after inspections, and a one time funding fee. You still must satisfy income, credit, residual income, and occupancy requirements with a VA knowledgeable lender and a licensed insured builder.
Quick Facts
- Covers land and construction, then converts to permanent financing after completion and required verifications.
- No monthly mortgage insurance, the federal guaranty supports competitive pricing and flexible cash needs.
- Primary residence occupancy is required, investment or vacation usage is not eligible at closing.
- Funding fee applies to most borrowers, exemptions exist, financing the fee is commonly permitted.
- Not all lenders offer this program, choose teams experienced with VA construction documentation and draws.
Mini FAQ
What is a VA construction loan
It is financing that pays for land and a custom build, then converts to a permanent VA mortgage. You maintain core VA advantages and follow draw and inspection rules while the home is built by a licensed insured contractor.
Do I need a down payment
Many borrowers with full entitlement do not need a down payment under VA rules. Lenders may still require reserves or conservative budget assumptions for larger builds, and you will pay a one time funding fee unless exempt.
Who manages inspections and draws
The lender controls an escrow and releases funds to the builder as milestones are met. Inspections verify progress and compliance with Minimum Property Requirements, and documentation like invoices and lien waivers accompanies each draw request carefully.
Key Takeaways
- VA construction loans combine land, build, and permanent financing with potential zero down.
- Primary residence occupancy is required, investment and vacation uses are not permitted.
- Draws release from escrow after inspections confirm milestones and required compliance.
- Minimum Property Requirements govern safety, sanitation, structure, and appraisal readiness.
- Funding fee applies once, many borrowers finance it to preserve closing cash.
- Choose a VA versed lender and licensed insured builder to streamline documentation.
What is a VA construction loan, and who qualifies
It is VA backed financing that covers land and new construction and then converts to a permanent mortgage. Eligibility follows standard VA service criteria, Certificate of Eligibility verification, and lender underwriting for income, credit, and residual income. VA’s handbook explains construction to permanent mechanics, while VA’s eligibility pages outline service based qualification and COE access for applicants and lenders. VA Lenders Handbook, construction chapter, VA eligibility overview. {index=4}
- A VA construction loan funds acquisition of land, approved site work, and building phases, then modifies to a permanent amortizing mortgage when the home passes required inspections and the appraiser issues a Notice of Value tied to completed work.
- Qualifying still centers on income stability, credit depth, and VA residual income by region and family size, so your preapproval should model taxes, insurance, utilities, and any association dues carefully before choosing a final budget.
- Because not all lenders offer VA construction programs, prioritize lenders with dedicated construction departments and proven draw administration so milestones, inspections, and documentation flow without avoidable delays or cash bottlenecks.
- Confirm VA eligibility and authorize COE retrieval through your lender, then have them explain entitlement status and any funding fee exemption markers that will influence your disclosures and final closing figures clearly.
- Share preliminary plans, specifications, and a realistic budget with your lender and builder, then revise scope and allowances until the payment, reserves, and timelines align with both underwriting and your comfort level.
- Ask the lender for a written path from breaking ground to modification, including inspection types, draw documents, and conversion timing so you understand responsibilities before construction begins on site.
Which structures exist, and how do single close and two time close options compare
Borrowers typically choose either a single close or a two time close structure. Single close combines construction and permanent phases under one closing, while two time uses a short term construction loan paid off by a permanent VA mortgage after completion. VA guidance and buyer materials explain these formats and how funding fee timing works for each variation. VA circular on construction to permanent, VA Home Loan Buyer’s Guide. {index=5}
- Single close consolidates paperwork and costs into one settlement and one set of disclosures, which can simplify timelines and reduce duplicated charges while the loan converts automatically to permanent terms after final inspection and completion documents.
- Two time close uses separate construction and permanent loans, which can increase flexibility for complex builds but adds a second settlement, additional disclosures, and rate lock decisions near the end of the project timeline.
- Your lender can illustrate how interest during construction is handled, who pays it, and when modification occurs so you can plan cash flow and milestone approvals without stress when materials or schedules shift unexpectedly.
- Ask for written comparisons of both structures, including fees, rate options, and total cost, then match the choice to your project complexity and appetite for administrative steps during construction and conversion.
- Model several completion dates and consider how changing rate markets might impact a second closing under a two time approach, then weigh that risk against the simplicity of a single close process.
- Decide early, because builder contracts, draw paperwork, and lender workflows depend on your chosen structure, and switching midstream usually adds friction and updated disclosures that slow progress.
| Feature | Single close construction to permanent | Two time close construction then permanent |
|---|---|---|
| Number of closings | One closing for both phases, automatic modification after completion | Two closings, construction first, then permanent refinance at completion |
| Cost structure | One set of lender, title, and recording fees overall | Two sets of settlement costs, possible duplicated fees and additional title work |
| Rate strategy | Often locks permanent terms upfront subject to completion standards | Locks permanent terms closer to completion, subject to market conditions then |
| Administrative burden | Simpler for most builds, fewer moving parts across inspections and conversion | More flexible for complex projects, but higher administrative load for borrower |
Clarify which structure your lender supports before bidding plans and materials, because documentation, funding timing, and interest handling differ meaningfully between the two paths. See VA circular on construction to permanent. {index=6}
What builder and property requirements apply, including registration and Minimum Property Requirements
VA requires a licensed insured builder and homes that meet Minimum Property Requirements. Builders follow VA registration and identification procedures, and properties must satisfy health, safety, and structural standards documented in the handbook’s MPR chapters. VA’s construction and valuation pages detail builder registration resources, while the MPR chapter explains the safety and sanitation standards appraisers apply during valuation. Construction and Valuation, builder information, Minimum Property Requirements chapter. {index=7}
- VA appraisers review plans and specifications against MPRs and local norms, then issue a Notice of Value based on completed condition, so your design should reflect safe access, reliable systems, and market appropriate features that support a credible valuation.
- Builders provide licenses, insurance, and required forms, and they cooperate with draw inspections, lien releases, and change order documentation so funds flow cleanly from escrow as progress is verified by third parties at each stage.
- Unique designs and rural parcels can meet MPRs if they satisfy health and safety standards and appraise to completed value, so discuss site utilities, road access, and comparable sales with your lender before finalizing land and plans.
- Verify the builder’s license, insurance, and familiarity with VA procedures, then collect the identification details your lender requests for draw and escrow setup to avoid early file defects.
- Have your architect and builder review the MPR checklist so plans address site drainage, utilities, egress, heating, and other standards that commonly draw conditions at appraisal and inspection.
- Request an early appraisal based on plans and specifications when practical, then adjust allowances or finishes to support valuation while staying within budget and schedule realistically.
How are funds disbursed during construction, and what inspections are required
Lenders escrow construction funds and release draws after milestones pass required inspections. The handbook describes construction to permanent loans with escrowed proceeds, builder draw requests, borrower approvals, and compliance inspections before disbursement. Training checklists reinforce common MPR checkpoints that inspectors and appraisers evaluate during the process. Review the official references for draw mechanics and inspection expectations. Handbook draw and escrow basics, Basic MPR checklist. {index=8}
- Draws typically align to foundation, framing, mechanical rough in, drywall, and finish stages, with each release supported by inspection reports, invoices, and lien waivers, then approved by you in writing before funds move to the builder.
- Expect the lender to withhold a retainage amount until final completion, which protects against unresolved punch lists, unpaid subcontractors, or missing documents that would otherwise complicate conversion to permanent financing after the last inspection.
- Weather or supply delays can shift the draw schedule, so maintain a small contingency and keep communication tight among lender, builder, and title so releases and inspections do not stall over avoidable paperwork gaps.
- Ask your lender for a written draw schedule and inspection list before closing, then share it with the builder so everyone understands documentation and timing expectations at each stage clearly.
- Designate one point of contact to coordinate access for inspectors and appraisers, respond immediately to clarifications, and store all approvals and lien releases in a single shared location.
- Before the last draw, walk the home with the builder, complete punch lists, verify occupancy items, and confirm that final inspection and Notice of Value documents are in the lender’s file to enable conversion smoothly.
| Milestone | Typical documentation | Usual release condition |
|---|---|---|
| Foundation complete | Inspector report, photos, updated title, lien waivers | Release after lender approval and borrower sign off |
| Framing and roof dry in | Inspection, invoices for framing, roofing, windows | Release after inspection clears and waivers provided |
| Mechanical rough in | HVAC, plumbing, electrical inspections, invoices | Release after code and lender inspections pass |
| Drywall and interior finishes | Progress inspection, supplier statements, lien waivers | Release after lender approval and escrow balance check |
| Final completion | Final inspection, certificate of occupancy, title update | Release retainage after conversion documents are ready |
Keep every inspection and draw document organized, since clean files shorten approvals and help avoid late surprises during conversion to permanent financing at completion. See draw and escrow basics. {index=9}
How do down payment, funding fee, and closing costs work on VA construction
Many borrowers with full entitlement need no down payment under VA rules, and a one time funding fee usually applies. VA’s fee page explains rates by first or subsequent use and down payment tier, and the borrower fee chapter clarifies that the funding fee may be included in the loan amount for purchases and construction loans when permitted. Review both references before selecting your structure. VA funding fee overview, Borrower fees and funding fee chapter. {index=10}
- Financing the funding fee preserves cash but increases principal, so compare payment and lifetime interest across financed and pay at closing options, then align the decision with your expected time in the home after completion.
- Exemption status appears on your certificate and can materially reduce costs, so ask your lender to confirm exemption and to update disclosures immediately if your status changes before final closing documents are issued.
- Builder credits can offset allowable closing costs, but lender rules govern what may be paid and how credits are applied, so request written cost breakdowns for clarity during negotiations on upgrades and allowances.
- Request two loan estimates, one with the funding fee financed and one with it paid in cash, then choose using total cost and comfort rather than only the headline rate on the quote sheet.
- Confirm whether your lender sets any internal cash or reserve expectations for large builds, then plan accounts accordingly so closing and post closing reserves are not a last minute surprise.
- Review the closing disclosure line by line and match it to the earlier estimate, ensuring funding fee treatment, credits, and escrows align exactly to avoid post closing corrections.
How do you prepare a fast approval, from COE to appraisal and conversion
Start by retrieving your certificate, then assemble a complete packet and a realistic build calendar. VA explains COE methods, and the credit underwriting chapter provides timing guidance that lenders apply for new construction documents and leave and earnings statements. A tight document set and clear schedule shorten underwriting and draw approvals significantly. Request or retrieve a COE, Credit underwriting chapter. {index=11}
- Upload plans, specifications, budget, builder license and insurance, site information, and allowance schedules at the same time, because complete files enter underwriting quickly and reach the draw department faster after approval.
- Coordinate appraisal timing with foundation and framing schedules so the appraiser can complete required views, then deliver any requested clarifications or change descriptions promptly to avoid valuation delays.
- Maintain a document checklist for inspections, lien releases, and invoices, and keep a single shared folder that all parties can access to prevent lost items that stall disbursements and schedules unnecessarily.
- Authorize COE retrieval and review entitlement lines and any exemptions with your loan officer, then set a budget that preserves comfortable residual income and realistic reserves for construction and final move in.
- Obtain written rate and point choices for your structure, choose based on total cost and break even, and lock terms only after the file is complete enough for underwriting to verify assumptions accurately.
- Before conversion, verify completion documents, title updates, and the Notice of Value are in the file, then confirm the permanent payment and escrow details match expectations for insurance and taxes.
What risks, timelines, and contingencies should you plan for from groundbreaking to conversion
Budget extra time and cash for weather, materials, and inspection driven changes. VA references describe when funding fees are due for single close structures and how inspections and escrow disbursements move during the build, while buyer guidance highlights roles for builder interest and typical allowances. Plan padding to avoid rushing decisions that reduce quality or blow budgets. Construction to permanent circular, VA buyer guide on construction. {index=12}
- Retain a contingency within your budget, because even small plan changes or supply issues can cascade into additional inspections, revised invoices, and extra time that complicate conversion and rate lock decisions if not anticipated up front.
- Keep communications clear, designate one coordinator for builder questions, inspection scheduling, and draw approvals, and store every approval and lien release where the lender and title can retrieve them immediately when needed.
- Review allowances for finishes and appliances realistically, and decide early whether rising costs should be handled through substitutions, additional cash, or a slightly longer schedule with clear documentation for the lender and appraiser.
- Schedule weekly check ins with your builder and lender draw team, then resolve document issues as they emerge so inspections and releases keep pace with site progress across milestones.
- Monitor market conditions and discuss lock strategy that accommodates modest delays, then avoid last minute scope changes that would demand re approvals or new inspections while your rate protection window is running.
- Before final walk, complete punch lists, obtain occupancy evidence, and verify the permanent loan details so conversion happens cleanly and the final draw and retainage release without further conditions.
How does conversion to permanent financing work at completion
After final inspection, title update, and Notice of Value, your construction loan modifies to a standard VA mortgage. The handbook and chapter three describe how permanent terms are established and when they replace construction terms after completion and document checks. Confirm your payment, escrow, and amortization schedule before the lender executes conversion. VA handbook, guaranty chapter, Construction chapter on conversion. {index=13}
- Conversion requires proof of completion, clear title, and loan terms aligned to the closing disclosure, so confirm taxes, insurance, and escrows reflect the finished home rather than estimates used during early budgeting stages.
- Ask for your amortization schedule and payment draft date, then set automatic payments and escrow reviews that fit your pay cycle and expected property tax timelines to avoid surprises months after move in.
- Store final documents, including inspection reports, Notice of Value, and recorded modification, because these records are useful for future refinances, claims, or questions about workmanship and warranty obligations.
- Review permanent terms with your loan officer before conversion, compare to the earlier estimate, and resolve any discrepancies in writing before final documents are executed by the lender.
- Confirm hazard insurance endorsements for a completed home, including any endorsements required by your association or municipality, then update the lender with the final annual premium details to set escrows accurately.
- Schedule utility transfers and change of address confirmations, then complete your move in plan within the timeframe your lender expects to satisfy the primary residence occupancy requirement under VA purchase construction rules.
The Bottom Line
A VA construction loan lets you build a primary residence while keeping core VA advantages. You will need a valid certificate, a VA versed lender, and a licensed insured builder ready to meet inspection, draw, and documentation requirements. Choose single close for simplicity or two time for flexibility, then plan contingencies for schedule and cost. Fund the one time fee in cash or within the loan, and keep documents organized so conversion to permanent financing happens smoothly after completion.
References used, VA Construction Loans, Requirements, Draws and One Time Close
- VA Lenders Handbook, construction to permanent, escrow, draws, conversion
- VA eligibility overview and service based qualification
- VA circular, construction to permanent definitions and fee timing
- VA buyer guide, one time close and construction process context
- VA Minimum Property Requirements chapter for health, safety, structural standards
- VA construction and valuation resources and builder information
- VA funding fee and closing costs overview
- Borrower fees and funding fee inclusion in loan amount
- How to request or retrieve a Certificate of Eligibility
- Credit underwriting chapter, timing and documentation for new construction
- Guaranty chapter, permanent terms and value limits for construction loans
- Basic MPR checklist for appraisal and inspection readiness
Frequently Asked Questions
Can I act as my own general contractor on a VA construction loan
Generally no. VA and most lenders require a licensed insured professional builder who can meet documentation, insurance, draw, and inspection requirements. Owner builder exceptions are rare, and many lenders will not approve that structure for risk reasons.
Does a VA construction loan always require a down payment
Often no for borrowers with full entitlement, although lenders can set internal overlays for large budgets. Partial entitlement or valuation gaps can introduce cash needs. Your lender will model entitlement status, appraised value, and reserves before approval.
How is interest handled during the construction phase
Policies vary by lender and contract. Interest may accrue on drawn amounts, and some agreements assign interim interest to the builder. Ask for a written schedule that shows interest, retainage, and draw timing before the first disbursement approval.
What inspections are required before draws are released
Lenders require inspections at specific milestones like foundation, framing, and finish stages. Inspectors verify progress and compliance with Minimum Property Requirements. Draw releases typically need borrower approval, invoices, and lien waivers attached to the inspection report.
Can I lock my permanent rate before construction starts
Single close structures often allow an upfront permanent rate, subject to completion standards. Two time structures typically lock later when you refinance into the permanent VA loan. Discuss lock windows and extension costs before you choose your structure.
What documents should I prepare to speed approval
Start with your certificate, income and asset proofs, plans and specifications, builder license and insurance, site details, and a line item budget. Organized, complete files enter underwriting quickly and move to the draw department sooner after approval.
Are manufactured homes or unconventional designs eligible
They can be, if they meet VA standards and local requirements, appraise to completed value, and pass inspections. Confirm eligibility and documentation early, because property type reviews can extend timelines if not addressed at the outset.
Will my closing costs be higher than a standard VA purchase
They can be, due to construction administration, inspections, title updates, and additional documents. Single close structures can reduce duplicated fees compared with two time approaches. Review itemized estimates and choose based on total cost and comfort.
What happens if costs exceed the original budget mid build
Discuss contingency plans before closing. You may adjust allowances, add cash, or change scope. Any change orders must be documented and may require revised inspections and appraiser review to protect valuation and conversion timelines at completion.
When do I start making permanent payments
After completion, final inspections, and conversion documents. The construction phase ends with a title update, Notice of Value, and modification to permanent terms. Confirm payment date, escrow setup, and amortization schedule before conversion is executed.
