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VA OTC NEW CONSTRUCTION LOANS
Can you explain what an VA OTC NEW CONSTRUCTION LOAN IS? How do I qualify and get approved for an VA One-Time-Close New Construction Loan? What are the eligibility requirements? How does it work? What is the steps of the mortgage process on the VA OTC NEW CONSTRUCTION LOAN?
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2 Replies
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I am happy to explain the VA One-Time Close (OTC) New Construction Loans extensively.
What is a VA OTC New Construction Loan?
A VA Construction-to-Permanent loan, or a VA One-Time Close Construction Loan, combines a construction loan with a traditional VA mortgage. It allows eligible veterans and active-duty service members to fund the construction of their new home and its permanent mortgage through one loan closing.
How do VA One-Time-Close New Construction Loans work?
- The same loan covers the long-term mortgage and the construction phase.
- This means you only close on the loan once before construction starts.
- You usually make interest-only payments for the amount drawn during construction.
- After completing construction, the loan converts to a permanent VA mortgage automatically.
Eligibility Requirements:
VA Loan Eligibility: Must have a valid Certificate of Eligibility (COE).
Credit Score: Usually minimum 620; however, no minimum set by VA (lender requirements vary)
Income: Income must be stable enough to cover mortgage payments and other obligations.
Debt-to-Income Ratio:
- There are no maximum debt-to-income ratio caps on VA loans.
- However, lenders have overlays on the debt-to-income ratio on VA OTC NEW CONSTRUCTION Loans, generally up to 41%, but with compensating factors, it can go higher.
- Owner-occupied primary Residence required.
- The property should meet VA standards as well as local building codes.
- Must use a licensed general contractor approved by the VA.
Qualification Process:
Obtain a Certificate of Eligibility (COE)
Meet credit score requirements set by the lender
Show stable employment history with income sufficient for repayment of debts, including proposed housing expense and all other recurring charges such as taxes or insurance premiums against which borrower will not receive compensation from another party.
Have a debt-to-income ratio within acceptable limits;
Choose an approved lender under this program who offers such loans.
Select a licensed general contractor experienced in new residential construction techniques who has agreed in writing to build according to plans developed jointly with the borrower’s architect if applicable, but at least meet minimum code requirements for safety purposes only without regard to aesthetic considerations where there may be more than one acceptable method available provided each method complies fully with applicable laws and regulations including those relating to energy efficiency or accessibility standards.
Provide detailed plans showing lot size, setbacks from property lines, floor area ratio calculations based on zoning district requirements, and any other relevant data the lender requires.
Mortgage Process Steps:
Pre-qualification: Initial assessment of eligibility
Obtain a Certificate of Eligibility
Choose a contractor and finalize building plans
Loan application: Formal application with required documents submitted for approval by the underwriter at the lending institution.
Property appraisal: This is based on plans and specifications provided by the borrower, showing all proposed improvements along with estimated costs.
Underwriting: The lender reviews all aspects of the application package, including but not limited to credit history check, employment verification, etc., before making a final decision on whether or not to approve the request for financing.
Loan approval: If approved, receive a commitment letter indicating the amount approved, terms, conditions, etc.
Closing: Sign loan documents (typically no down payment required), which include a promissory note evidencing promise to repay the sum of certain money advanced plus interest thereon according to its terms together with such security instrument as may be necessary to create a valid first lien against the real property being financed hereunder subject only those exceptions stated within policy issued by title insurer insuring said lien position; Construction phase begins after closing has occurred followed after that periodic inspection during construction draw taken borrower accordance methods agreed upon between general contractor lender representative once progress achieved per the schedule agreed upon between parties signifying completion each milestone. The final inspection takes place upon satisfactory completion of work. All units have been inspected and found to comply with fully applicable codes, laws, and regulations regarding safety, health, welfare, and occupants’ structures, which generally accepted good practice trades involved in their construction maintenance.
Conversion: VA OTC New Construction Loan converts VA permanent mortgage loan.
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What is a VA One-Time Close (OTC) New Construction Loan?
A VA One-Time Close (OTC) New Construction Loan is a mortgage program that enables eligible veterans, active duty service members, and certain other members of the military community to finance both the building of a new home and the permanent mortgage with a single loan. The construction financing, lot purchase (if necessary), and permanent mortgage are combined into one loan called this loan to streamline the process and save money on multiple closings.
How Does a VA OTC New Construction Loan Work?
The entire home-building process can be financed through just one loan with the help of VA OTC loans. The VA OTC NEW CONSTRUCTION LOAN works as FOLLOWS:
Single Loan Approval: The borrower gets approved for an amount covering everything—land cost (if applicable), construction costs, and the permanent mortgage.
One-Time Closing: The borrower completes only one closing process, which covers two phases: the construction phase and the permanent phase.
Construction Phase: During the stage known as a drawing, funds are disbursed for each completed work or stage.
Permanent Mortgage: After construction, the loan becomes permanent, eliminating the need for a second closure.
Choose a Site and Builder:
You can pick out a lot that suits your needs and choose a builder the VA approves to construct your home.
Submit Building Plans and Budget:
The lender will need detailed construction plans, cost estimates, and a timeline to evaluate the loan.
Loan Approval and Closing:
One-time closing means less hassle with paperwork – sign your loan documents, pay any necessary fees, and move on with life!
Construction Phase:
As progress is made on construction milestones (draws), money will be disbursed to the builder. Inspections need to occur periodically to ensure everything’s going smoothly.
Conversion to Permanent Loan:
Once construction has wrapped up, there won’t be another closing because the loan automatically turns into a permanent VA mortgage. At this point, you’ll start making regular mortgage payments.
Benefits of VA OTC New Construction Loan
Simplified Process: Multiple closing costs could get confusing; this option consolidates them all into one.
No Down Payment: Most VA OTC loans don’t require borrowers to make a down payment, which can greatly increase accessibility for eligible buyers.
Fixed Interest Rate: While building your home, it can be hard to know what interest rates will do next. That’s why it’s nice to lock in today’s low rate instead of gambling tomorrow!
No Private Mortgage Insurance (PMI): If you ask me, saving money each month by avoiding PMI is definitely worth considering.
Things To Think About
Builder Approval: Make sure whomever you hire is already approved through the Veteran’s Administration; otherwise, they won’t qualify either!
Documentation: It’ll take a while to gather everything, so plan accordingly–they want documentation like crazy!!! And don’t forget those intricate construction blueprints 😉
Inspection Requirements: We’ll need someone checking things out occasionally during this process—think of them as friendly visits, though!