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Though many people only associate VA loans as a great means for veterans to purchase existing homes or refinance those that they already own, they can actually be used for new builds as well.A Slightly Different ProcessThe opportunity to build yourself a new home can be an amazing, once-in-a-lifetime chance, so it is important to understand the process needed to borrow money to do so through the VA Home Loan Guaranty Program. The way that this system works for new builds is slightly different than it is for existing homes and refinancing. Just as with the latter, you will need to prove entitlement (veteran status) as well as have a qualifying current income and credit score and certain VA funding fees will be applied. The difference comes in the way that the loan is distributed and the payments that you will need to make, these distinctions are important for you to understand before undertaking the VA home loan for new builds process.Specific RequirementsIf your goal is to use a VA home loan to build a new house, then one important factor that you need to look for is that the builder that you choose has a current valid VA builder ID number. Basically, this ID number will prove that the contractor has registered with the U.S. Department of Veterans Affairs.The mortgage process for VA loans on new homes begins only after the contractor is selected. However, the loan needs to be approved before that contractor is able to break ground. At that time the borrower will be provided with written permission from the bank that will pay the builder the amount designated by the VA for the construction of the home. Any money that remains after that point will be transferred to an escrow account.Payback SystemThe typical payback plan for VA home mortgages that are applied to existing homes as well as refinancing is to require a payment from the veteran home owner within 30 following the loan closing. New construction loans are different, however, because the requirements for payback do not begin until the home is ready to be occupied. The general rule is that veteran borrowers can delay their first payment for up to 12 months post-closing in order to allow the builders to complete construction on the new home.Just because the borrower is allowed to delay the payments on the home until it is complete, it is important to note that the contractor is required to make interest payments each month throughout the construction of the home and that interest begins to accumulate immediately. Also, the year spent building the home is deducted from the loans term. Meaning that the borrower will only have 29 years to pay back a 30-year mortgage if the construction takes a full 12 months.FeesDuring the construction phase there will be many fees that accrue and they will be the responsibility of the builder. Due to the specific guidelines set forth by VA loans, the borrower is not required to pay these fees. VA-approved builders are also required to carry hazard insurance and they must pay for all title-update fees.Finally the funding fee that is charges for all VA home loans will still apply if you are borrowing money for a new construction. This fee must be paid within 15 days following the loans closing, though most borrowers choose to pay that fee at the time of the closing. However, if you are a disabled veteran or the surviving spouse of a veteran you may not be required to pay that fee, so it is a good idea to check.
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