Can I Build a Sustainable Home with a VA Loan?
Construction loans are always a slippery prospect, even for those in good financial standing, with solid credit and healthy savings.
The collapse of the housing market ten or so years ago made traditional lenders incredibly wary of supporting construction-based projects. And, to add insult to injury, those rare lenders willing to entertain the idea of supporting construction-based projects will often only do so if the would-be home buyers agree to a significant down payment upfront.
But what about veterans? What recourse do they have, if any, through the VA home loan program?
And what if these service members want to finance an unconventional home building project—a sustainable home, say, that doesn’t fit the mold of what a “typical” home looks like?
Can I get financing for this?
Unfortunately, it’s almost all up to the lender’s discretion as to whether or not they’ll finance a project like this. (You're definitely going to want to have an idea of how much construction would cost you before you get in touch with them.) So, there’s not really a set roadmap for folks interested in pursuing these sorts of projects.
Knowing upfront what your unconventional eco residence might cost and considering alternative options to construction—such as the Federal Housing Authority’s Energy Efficient Mortgage program—may be worth your while.
It’s worth remembering with this process that you still have to go through all the same rigmarole that you would when securing a “normal” VA home loan.
Will this affect my zero-down payment eligibility?
We should preface what follows by first saying that, unfortunately, what the VA refers to (with an air of polite disdain) as an “uncommon home”—i.e., your sustainable or eco-friendly home—is not dealt much in the way of sympathy during the appraisal process.
The appraisal stage of the VA construction loan process can make or break the zero-down-payment verdict that most veteran borrowers are gunning for.
According to a blog post on the subject of construction home loans on the Department of Veterans Affairs website, “if a borrower… builds an uncommon home… the appraisal may come in lower than needed for a zero-down payment.”
What does this mean, exactly? It means that, from the outset, the cards are more or less stacked against you and your dreams to build an eco-friendly residence.
So, bear this sad news in mind as you avail yourself of what the typical VA construction home loan process looks like (described below from the borrower’s point of view).
I’m going to give it a shot and see what happens. What’s the approval process like?
Let’s assume that you found your plot of land, you found a builder that you trust (you may have a background in construction, but remember, the VA does not approve owner/builder situations—that is, situations where the borrower intends to build the residence themselves), and that you’re itching to get started after the approval—fingers crossed!—comes through.
The VA’s builder requirements aren’t terribly stringent. All the builder needs to do is prove that they are licensed by some government entity to do the kind of work they’re doing.
Lenders are a different story entirely. According to the VA, you’re going to need to take the following steps in order for your lender to consider your construction loan application.
- Ask your builder to submit any required documentation – Typically, lenders are going to want to see detailed construction plans, as well as comprehensive lists of the materials that are going to be used—this is a big sticking point for sustainable home builders, who often utilize “unconventional” materials for which lenders are hesitant to underwrite expenses
- Double-check that the home you intend to build is consistent, style-wise, with others in the area – This is another unfortunate sticking point for eco homebuilders; lenders want builders to produce a “comparable” property that isn’t unique or unusual for the area, that sticks to the style and size of homes nearby
- Pray, cast a spell, cross your fingers—do whatever ritual you gotta to help that approval come through – It usually takes a little over a month—45 to 60 days, according to some estimates—for word to come back regarding your construction loan approval or rejection, so don’t drive yourself crazy clutching that cellphone waiting for a call within just a few days of your application submission
The prospects for eco-friendly construction through approved VA lenders are, to be frank, a bit bleak. But there are other options out there, such as taking out a personal loan or turning to a local or regional financial institution (rather than a big-box bank) that are oftentimes more amenable to financing “unusual” projects like yours.
Have hope! There are resources out there to support you in the building of your dream home. The VA construction loan program may just not be the right fit considering what you want to do.
Still have questions? Get the facts about VA loans.