VA Construction

Why VA Construction is the most underutilized benefit

Most Veterans know about VA purchase loans ($0 down, no PMI). What most don't know is that the same benefit works for building a brand-new home — same $0 down, same no-PMI, same Veterans-only pricing. You can build the home you want instead of buying whatever's on the market.

Why isn't this used more? Because very few lenders offer VA construction. It's operationally complex (builder registration, draw management, the as-built appraisal, conversion mechanics), and VA's program rules add another layer most lenders don't want to deal with. So Veterans who'd qualify for a VA OTC end up using a conventional or FHA construction loan instead — losing the $0 down, the no-PMI, and the lifetime VA pricing they earned through service.

Our take: Veterans earned this benefit. We've built our team specifically around VA construction lending because most of the market doesn't. If you qualify, this is almost always the right loan — by a lot.

What's different about the VA OTC vs other construction loans

Compared to conventional, FHA, or USDA construction loans, the VA OTC stacks up like this:

• Zero down vs 5–25% down: Conventional construction typically requires 10–20% down. FHA OTC requires 3.5%+ down. USDA can be $0 down but only in eligible rural areas. VA gives you $0 down nationwide, anywhere you can buy land and build.
• No monthly MI vs $200–500/mo MI: On a $400K conventional or FHA construction loan, monthly MI runs $150–300+/mo for the life of (or first 11 years of) the loan. VA construction has no MI — ever. Over 30 years that's tens of thousands.
• No construction-period payments: On VA, you typically make no payments during the build. Interest accrues and is rolled in. Your first payment starts after move-in. Other programs may require interest-only payments during the build period.
• Lifetime VA pricing: VA rates have historically run 0.25–0.50% lower than equivalent conventional. The savings compound across the life of the loan.
• Surviving spouses qualify: Surviving spouses of Veterans who died in service or from a service-connected disability have VA benefits — including the OTC. This is a meaningful benefit a lot of survivors don't know they have.

Eligibility — COE, entitlement, and surviving spouses

VA Construction uses the same eligibility framework as a VA purchase. You need a Certificate of Eligibility (COE), which we help you get if you don't have one. Your entitlement amount drives how much you can build with $0 down.

Who qualifies for VA benefits

• Veterans who completed required service (typically 90 days active duty during wartime, 181 days during peacetime, or longer for officers)
• Active-duty service members
• National Guard / Reserve members who have completed required service (typically 6 years, or 90 days of active federal service)
• Surviving spouses of Veterans who died in service or from a service-connected disability
• Spouses of POW/MIA Veterans (in some cases)

Documentation that helps establish eligibility

• DD-214 (Certificate of Release or Discharge from Active Duty) — the standard discharge document
• NG-22 (for National Guard members)
• Statement of Service / Letter from Commanding Officer (for active-duty or recent separations)
• VA Form 26-1817 (for surviving spouses)

If you don't have these documents, we can usually request them on your behalf — just need your basic service info to start. The COE itself is pulled directly from VA's system once we have your service information.

VA Funding Fee — the one cost to plan for

VA loans carry a one-time Funding Fee that goes to VA (not to the lender) — this funds the program for future Veterans. The fee scales with your down payment and whether you've used VA before:

• 0% down, first-time VA use: 2.15% of the loan amount
• 0% down, subsequent VA use: 3.30% of the loan amount
• 5–9.99% down: 1.50% either way
• 10%+ down: 1.25% either way

Important exemptions: Veterans with a 10%+ service-connected disability rating are FULLY EXEMPT from the funding fee — $0. Surviving spouses (using VA via spousal entitlement) are exempt. Purple Heart recipients are exempt. We always check exemption status as part of pre-approval — about 1 in 3 Veterans we work with qualifies for exemption.

The funding fee can be rolled into the loan amount, so you don't have to bring it to closing as cash. On a $400K loan with the standard 2.15% fee, the financed balance becomes ~$408,600 — manageable, and the monthly impact is small. Use the Payment Calculator on the Purchase page to model this precisely.

The 12 steps from idea to keys

VA Construction follows the same process as our other one-time close construction loans, with a few VA-specific layers. The first three steps are the same as Construction generally — and the order matters.

The critical three — do these in this exact order

• 1) Get pre-approved (including VA eligibility confirmation). We pull credit, verify income and assets, confirm your COE/entitlement, and tell you the loan amount you actually qualify for. People skip this and design a home they can't afford. Don't be that person.
• 2) Find your builder. Step two — before land. Your builder has more impact on the experience than we do. Interview, get references, visit completed builds. Pick someone you trust with the scope you have in mind.
• 3) THEN find your land. Land is the exciting step and everyone wants to jump there first. The mistake: site conditions hugely affect build cost. With a builder already in the picture, land selection includes a real site assessment.

Steps 4–12

• 4) Preliminary design + home pricing with your builder
• 5) Submit offer on land + negotiate option/feasibility period (60–90 days+)
• 6) Submit land + construction contract to PRMI for review and updated disclosures
• 7) Order VA appraisal + title — VA appraiser uses plans, specs, and land for the as-built valuation
• 8) Closing + funding — $0 down, locked rate, no construction-period payments
• 9) Begin construction — builder submits draw requests as work progresses; we review the work in place against the cost breakdown and release funds by percentage of completion (default: 5 draws on site-built, 3 on modular/manufactured; we can add more if your build calls for it)
• 10) Construction completion — final inspection, certificate of occupancy, builder paid in full
• 11) Conversion to permanent VA mortgage — automatic, no new closing, no new credit check, and an automatic float-down to current market rates (no request needed)
• 12) Tell us how we did — Veterans helping Veterans find this is how we keep doing this work

Builder requirements — registered with PRMI, not with VA

This is a common misconception worth correcting: VA does NOT register builders, and there's no VA builder list. Each lender (us included) registers builders through its own process. Registration is how we confirm your builder has the capacity, experience, and insurance to complete your build.

Here's what we collect during PRMI builder registration. Your builder provides this directly to us — it doesn't slow down your timeline:

• Company info — entity type, ownership, years in business, license number
• Project history — completed builds, current projects, client references
• Trade references — vendor/supplier credit references and pay history
• Credit references — bank line, lender relationships
• Licensing — state contractor license (where required), local permits
• Insurance — General Liability and Workers' Compensation (where applicable)
• Financial statements — primarily on site-built scopes, sized to the build

Once we have the full registration packet, the review itself typically takes just a few business days. If you've got a builder you love who's never done a VA construction loan, we walk them through the registration. Some builders aren't familiar with VA's MPRs (Minimum Property Requirements) — we help your builder navigate them so the build meets the standard from day one.

VA-specific quirks worth knowing

• No DTI hard cap on Approve/Eligible: VA's automated underwriting (run through Fannie's DU or Freddie's LPA on VA loans) doesn't have a hard DTI cap when the file gets an Approve/Eligible. Strong residual income and credit can offset DTIs over 50% on AUS — try getting that anywhere else.
• No minimum credit score from VA: VA doesn't publish a minimum FICO. Lender overlays vary — ours starts at 620 for most scenarios. For below 620, we look at residual income, depository history, and compensating factors. We've closed VA construction loans for borrowers other lenders wouldn't touch.
• Seller and builder credits can pay personal debts: One of the most under-used quirks in VA lending: third-party contributions (seller credit on purchase, builder credit on construction) can pay off personal debts to qualify the Veteran. This is unusual — most programs restrict credits to closing costs. On VA, it's allowed and we structure it intentionally when it helps.
• Land already owned: If you already own your land free and clear (or with a small lot loan), its equity counts toward the down payment. Many Veterans inherited or purchased land years ago — that equity is a meaningful contribution to the build math.

Why The McKnight Team does this every week

VA Construction is what we built our team around. It's complex enough that most lenders avoid it, but the Veterans who qualify deserve someone who actually knows how to close these loans without the wheels coming off mid-build.

We've got a dedicated team that handles VA OTC: a process for getting your COE quickly, a builder registration process that doesn't burn time, draw management that doesn't leave your builder waiting, and a conversion mechanic that's clean. We're a top VA lender in Texas and growing across the southeast specifically because of this product.