While the VA One-Time Close loan offers significant advantages, veterans must approach it with a clear understanding of the financial mechanics. There is no such thing as free money. One of the most misunderstood “quirks” of this program is how interest is handled during the build. Veterans are not allowed to make interest payments out of pocket while the home is under construction. While this sounds beneficial, the interest still accrues. It must be calculated upfront and built into the construction budget so the builder can pay it on your behalf. This inevitably increases the total project cost and can sometimes put pressure on the appraisal value.
Additionally, while you often hear “100 percent financing” associated with VA loans, this does not always mean zero cost at the closing table. Closing costs still exist. If you do not own the land, or if the land does not have sufficient equity, you may need to bring funds to close. However, if you already own your land free and clear, that equity can often be used to cover these costs, allowing the transaction to truly function with no cash out of pocket. For example, we recently assisted a family who purchased 17 acres for $275,000 and built a modular home. The finished project appraised for over $530,000. By intentionally choosing modular construction and leveraging the land value, they maximized their position.
It is also vital to understand what you can build. The VA is surprisingly flexible. Beyond standard stick-built homes, you can finance modular and manufactured homes. You cannot, however, use a VA loan to buy raw land by itself. The land purchase must be tied directly to the immediate construction of a home. There is no limit on acreage, but the relationship between the land value and the home value must make sense to the appraiser. In East Tennessee, where land can vary from flat lots to mountain acreage, having a local lender who understands these valuations is critical.
| Feature | Standard Construction Loan | VA One-Time Close Loan |
|---|---|---|
| Down Payment | Typically 20-30% required | 0% required (up to county limits) |
| Closing Process | Two closings (Construction + Permanent) | One single closing before building starts |
| Payments During Build | Interest-only payments required monthly | No payments required (interest is financed) |
| Credit Score Requirements | Usually 680-720+ | Flexible (often as low as 580) |
| Appraisal Process | Subject to conventional standards | Subject to VA Minimum Property Requirements |
Success with a VA One-Time Close loan relies heavily on the team you assemble. Builder experience matters more than you might think. Most local builders in the Tri-Cities area are excellent at what they do but may not have experience with the specific draw schedules and paperwork required by the VA. When a builder is unfamiliar with the process, or has been burned by inexperienced lenders in the past, they may be hesitant. We validate the builder’s financial strength and insurance to ensure they can complete the project. We work directly with them to explain the draw process—where funds are released as work is completed—so they feel confident moving forward.
The qualification process for the veteran is one of the most lenient in the mortgage industry. We can often approve borrowers with credit scores as low as 580, provided they receive an “approve/eligible” decision through automated underwriting. Furthermore, the debt-to-income ratios on VA loans can be significantly higher than conventional financing; I have seen approvals with ratios in the mid-60 percent range. This flexibility is a massive advantage for veterans carrying student loans or other debts who still want to build a high-quality home.
The process generally follows these steps: We qualify you based on credit, income, and assets. We then validate your chosen builder and order an appraisal based on the construction plans and the land. Once the loan closes, construction begins. For manufactured homes, the draw schedule is typically simple (e.g., 10% at closing, 80% upon delivery, 10% at completion). For site-built homes, there are multiple draws over the timeline. Once the home is inspected and complete, the loan converts to a standard VA mortgage with full payments. It is a myth that these loans are impossible to close; they simply require patience, precision, and a lender who knows the terrain.
Q1: Can I use a VA loan to buy just the land now and build later?
No. The VA loan cannot be used to purchase raw land by itself. The land purchase must be combined with the construction contract in a single transaction. You must be ready to start building immediately upon closing.
Q2: Do I have to make mortgage payments while the home is being built?
No. You do not make monthly mortgage payments during the construction phase. However, the interest that accrues during this time is capitalized (added) into the loan amount or construction budget, so you are still paying for it ultimately.
Q3: Can I have more than one VA loan at a time?
Yes. It is possible to have an existing VA loan on your current home and use your remaining entitlement to build a new home. This is common for veterans who want to turn their current home into a rental property or are relocating.
Q4: What types of homes are excluded from this program?
You generally cannot build “tiny homes” that do not meet minimum square footage requirements, nor can you build on property that lacks permanent utilities or road access. Unique properties like barndominiums are allowed only if there are comparable sales in the area to support the value.
Q5: Do I need a perfect credit score to build?
Not at all. One of the biggest advantages of the VA One-Time Close loan is the credit flexibility. We can work with scores as low as 580, which is significantly lower than what is required for traditional bank construction loans.
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THE DEPARTMENT MAINTAINS A RECOVERY FUND TO MAKE PAYMENTS OF CERTAIN ACTUAL OUT OF POCKET DAMAGES SUSTAINED BY BORROWERS CAUSED BY ACTS OF LICENSED RESIDENTIALMORTGAGE LOAN ORIGINATORS. A WRITTEN APPLICATION FOR REIMBURSEMENT FROM THE RECOVERY FUND MUST BE FILED WITH AND INVESTIGATED BY THE DEPARTMENT PRIOR TO THE PAYMENT OF A CLAIM. FOR MORE INFORMATION ABOUT THE RECOVERY FUND, PLEASE CONSULT THE DEPARTMENT’S WEBSITE AT WWW.SML.TEXAS.GOV
