The VA loan benefit is one of the most powerful homebuying tools available to veterans, active duty service members, and surviving spouses. Most people know it can be used to buy an existing home. Fewer realize it can also be used to finance new construction, and fewer still understand how different the process is compared to a standard VA purchase. If you are considering building a home in North Carolina using your VA benefit, here is what you need to know before you sign anything with a builder.
Yes, VA Loans Work for New Construction
The VA does allow its loan guarantee to be used for new construction. The catch is that the process, the lender requirements, and the builder requirements are meaningfully different from a standard VA purchase on an existing home. Not all lenders offer VA construction financing, and not all builders are set up to work with VA buyers on new builds.
There are two primary paths for using VA financing on new construction in NC.
The first is a VA construction loan, sometimes called a one-time close or OTC loan. This combines the construction financing and the permanent mortgage into a single loan with one closing. You close once before construction begins, the loan funds in draws as construction progresses, and it converts automatically to a permanent VA mortgage when the home is complete. You only pay one set of closing costs.
The second path is to use a builder's construction financing during the build and then use a standard VA purchase loan to buy the completed home at closing. This is a two-closing process and is more common with production builders who have their own preferred lenders.
Builder Requirements for VA New Construction
For a new construction home to be financed with a VA loan, the builder must be VA-registered and approved. Not all builders are. Before you get attached to a specific community or floor plan, confirm that the builder is on the VA's list of approved builders. Your VA lender can verify this quickly.
The home must also meet VA Minimum Property Requirements (MPRs), the same standards that apply to existing homes. The VA requires a final inspection by a VA-approved appraiser who will verify that the completed home meets MPRs before the loan can close. Some production builders who regularly work with VA buyers have this process dialed in. Others who rarely work with VA financing may find the inspection and appraisal timeline creates friction.
The Appraisal Issue in New Construction
Appraisals are one of the most common friction points in VA new construction deals. VA appraisals are ordered through the VA's own appraisal management system, and the appraiser must be VA-certified. In markets where new construction inventory is high and comparable closed sales are limited, VA appraisals on new construction can come in below the contract price.
Builder contracts for new construction often limit or eliminate your ability to walk away if the home appraises low. Read the builder's contract carefully and understand your appraisal protection before you sign. A VA buyer without an appraisal contingency in a new construction contract is in a difficult position if the appraisal comes in short.
The Entitlement and Funding Fee
Using your VA benefit for new construction works the same way as any VA loan from an entitlement standpoint. If you have full entitlement, there is no loan limit. If your entitlement is reduced from a prior VA loan that was not fully paid off, your lending capacity may be affected.
The VA funding fee applies to new construction VA loans just as it does to purchase loans. The fee ranges from 1.25% to 3.3% of the loan amount depending on your down payment, whether it is a first or subsequent use of your VA benefit, and whether you have a service-connected disability that exempts you from the fee entirely. Disabled veterans with a service-connected rating are exempt from the VA funding fee, which is a significant savings on a new construction loan at higher price points.
Timeline Expectations
New construction timelines are longer and less predictable than resale purchases. Production builders in the Triangle are typically quoting six to twelve months from contract to completion depending on the community and the stage of construction when you sign. Custom builds run longer.
VA construction loans lock your interest rate at closing before construction begins. In a rising rate environment, this is a meaningful benefit. In a falling rate environment, you may be locked into a higher rate than what is available when the home is actually finished. Understand the rate lock terms and any float-down options your lender offers.
What to Watch Out For
Builder upgrade pricing. The design center is where new construction costs escalate quickly. VA loans require the appraiser to support the total value of the home including upgrades. Upgrades that do not add appraised value may create a gap between your loan amount and the purchase price.
Builder preferred lenders. Many production builders push buyers toward their in-house lender with incentives like closing cost credits. You are not required to use the builder's lender, and it is worth comparing rates and terms independently. Your VA benefit travels with you to any VA-approved lender.
At Jon Tennant Real Estate and Business Brokerage, we represent VA buyers in new construction purchases throughout Wake and Durham County and know which builders are set up to work smoothly with VA financing. Reach out before you visit your first model home.