Questions have been popping up about structuring a VA loan to pay off construction financing. This is not considered a refinance under VA guides and can be underwritten and submitted for guaranty as a purchase to avoid seasoning requirements. The closing docs will reflect a refinance since they of course already own the land. Attached are two docs to help with structuring.
VA 2-Time Construction Loan
VA Construction Loan Amount Worksheet
VA Construction Loans
A 2-time VA construction loan refers to a permanent loan used to pay off the costs of
constructing a dwelling on land owned by the Veteran.
The borrower must have contracted with a licensed general contractor to construct the dwelling.
The borrower may act as the general contractor only if they are a licensed general contractor. If
the borrower acts as the builder, then only actual costs may be included in the acquisition cost.
Maximum LTV / CLTV
The maximum LTV / CLTV is 100.00% of the lesser of the appraised value or the documented
Determining the Land Value
If the land was acquired by the Veteran within 1 year of the application date, then the actual cost
should be entered; If the Veteran acquired the land more than 1 year from the application date,
then the value of the land from the VA appraisal should be entered; If the land was gifted to the
borrower AND has no existing liens, then the value of the land from the VA appraisal should be
entered; If the land was gifted AND there are existing liens, then the amount of the existing liens
should be entered.
Because VA does not require that the appraiser report the current land value, a request should be
made to the appraiser requesting that they include the land value.
• The builder’s price or the sum of all subcontractor bids and materials
• Borrower-paid options and construction costs not included in the builder’s price to build
• Interest and other costs associated with a construction loan to fund the construction; and
• The value of the land
Case Number Assignment
The VA case number must be assigned as a purchase transaction and the appraisal ordered as
Construction to Permanent.
Because the borrower is on title to the land, the loan should be disclosed and closed as a
refinance, not a purchase.
Per VA guidelines outlined in VA Circular 26-18-7, the loan must be underwritten as a purchase,
not a refinance, and all purchase guidelines apply.
Cash Back to the Borrower
Cash back to the borrower at closing is not allowed except to replenish the borrower for any
borrower paid extras over and above the contract and any out-of-pocket expenses not included in
the builder’s price. All extras and expenses, along with the cost must be itemized.
Financing Closing Costs
The costs associated with the loan may be included in the loan amount, subject to LTV
restrictions, provided the borrower has been on title to the land for at least 12 months at the time
of closing the VA loan or if the land was received as a gift.
Additional Required Documentation
• The date of purchase of the land must be verified with a copy of the settlement statement
or other legal document.
• Evidence that the funds used to pay for borrower paid options were from an acceptable
• The VA 2-Time Close Construction Loan Amount Worksheet must be completed.
• All new construction requirements must be met.