What you need to know
Aligned Mortgage is pleased to announce that it now offers Veterans and active-duty servicemembers the opportunity to build the dream of homeownership from the ground up.
Most people aren’t as familiar with construction loans as more traditional types since the typical homebuyer is looking at properties that are already built. But if you’re interested in building a house and have questions about how your VA Loan can help, you’ve come to the right place because we’ve got answers.
What exactly is a construction loan?
In the simplest terms, a construction loan is a short-term loan that covers the cost of building a custom home from the ground up. Note that the loan is closed before construction begins.
How many types of construction loans are there?
There are two main types:
Does Aligned Mortgage offer both types of construction loans?
Currently, Aligned Mortgage offers a two-time close, which means that the interim financing – or actual construction loan – is a conventional loan, but the permanent financing – or final loan – can be a VA Loan.
How are construction loan funds disbursed?
Unlike a traditional VA Home Loan, where the borrower receives the total loan amount to buy a property that’s already built, a construction loan proceeds in installments or draws, also known as a Loan in Process (LIP) account. This means that the lender disburses money on the part of the house that’s completed. For instance, once the foundation is completed and an inspector signs off, that contractor is paid. Loan funds are kept in escrow during the project’s construction phase and disbursed to purchase materials and pay contractors once the work is completed properly and invoiced. The borrower is never allowed unrestricted access or use of these loan funds. They can only be used for approved payments on the construction project and other mortgage-related needs.
By the way, a lot is going on during home construction, so make sure to communicate with your builder. An inspector confirms the completion of each stage of construction and ensures that the work was performed correctly. The inspector then approves draw payments to the builder. It’s essential to confirm with your builder to ensure those payments are made. You want the process and the schedule to run smoothly.
Can I also finance the lot I want to build on with a construction loan?
You might be able to finance the land or lot purchase along with the home’s construction with a construction loan. And in some cases, you can roll in and finance your closing costs. Generally, unless the price is higher than the appraised value, you shouldn’t have to provide a down payment. Your lender will be able to advise you about your particular situation.
What are the steps to getting a construction loan?
The construction loan process is not unlike what you would go through with a regular VA Home Loan, with the addition of a few extra steps.
Please don’t hesitate to contact a loan officer at Aligned Mortgage with any questions you have about building your dream home. Our team members are always happy to familiarize you with guidelines and requirements regarding our loan packages.