Can Veterans and Active Duty use their VA loan entitlement to build their dream home?

Absolutely. VA may guarantee a loan “for the construction of a home to be owned and occupied by the Veteran,” including both one-time-close and two-time-close structures. In a one-time close, you close once, fund construction through controlled draws, and the loan modifies to permanent terms at completion. In a two-time close, you use interim financing and later refinance into the permanent VA loan.  I'll lay everything out for you step-by-step down below.  But don't worry,  having these three professionals with VA Construction knowledge on your team to navigate all of this will be extremely helpful!: Realtor, Builder, Mortgage Advisor Benefits

Key program guardrails you’ll care about:

  • Loan types: One-time close and two-time close are both permitted. Benefits

  • Appraisal & NOV timing: Appraisals can be ordered “based on plans & specs”; VA issues a Notice of Value (NOV) and later requires a post-construction inspection by the VA appraiser to confirm the home was built per the exhibits before issuing the Loan Guaranty Certificate (LGC). Benefits+1

  • Warranties/inspections: VA relies on local building inspections and requires a 1-year builder warranty (or a 10-year insured protection plan in certain cases). Where local authorities don’t inspect, the lender must certify completion and MPRs. Benefits

  • Builder IDs (new in 2025): VA eliminated the requirement for a VA-issued builder identification number on new/proposed construction loans processed through the guaranty program (SAH and NADL still require it). Lenders must still ensure the builder meets state/local requirements. Benefits

  • Escrow draws: Construction proceeds are held in escrow (a “draw” or “LIP” account) and released to the builder as work is completed; the lender must obtain the Veteran’s written approval before each disbursement. Benefits

  • Acquisition cost math: For one-time closes, the max loan is the lesser of the NOV “reasonable value” or the acquisition cost (generally contract to construct, eligible permits/reserves, and—when applicable—balance owed on land), plus the applicable funding fee. (VA provides detailed tables for scenarios based on when land was acquired.) Benefits

  • Guarantee & fees: Construction/permanent loans use the same guaranty percentages as purchase loans, and funding fees are paid within 15 days of closing. Benefits+1

Primary sources (in plain English)

  • VA Pamphlet 26-7 (Lenders Handbook), Chapter 7, Topic 2: The definitive construction/permanent section (revised June 5, 2024) covering eligibility, loan mechanics, acquisition cost, funding fee entries, and step sequence. Benefits

  • VA Circular 26-18-7 (Apr. 6, 2018): Original program guidance clarifying one-time and two-time close processes, draw/escrow rules, and lender responsibilities. Still a helpful reference for process flow. Benefits

  • VA Pamphlet 26-7, Chapter 10 (Appraisal): Warranty requirements, reliance on local inspections, and the required post-construction inspection by the VA appraiser before the LGC. Benefits

  • VA Circular 26-25-1 (Mar. 31, 2025): Removes the VA builder ID requirement for new/proposed construction in the guaranty program and updates the builder-complaint process. Benefits

Example: Building with a One-Time Close (illustrative)

  • Profile: Staff Sergeant Jamie R., eligible Veteran, owns a lot free and clear purchased 18 months ago.

  • Numbers:

    • Contract to construct (incl. permits/reserves): $480,000

    • Land: owned >1 year, no balance owed (land cost/value isn’t added to “acquisition cost” in this case)

    • NOV “reasonable value”: $500,000

    • Max VA loan: lesser of acquisition cost ($480,000) or NOV ($500,000) → $480,000 (plus funding fee if financed)

    • Cash at close: standard closing costs/prepaids; no down payment required by VA because loan ≤ reasonable value and entitlement/COE are sufficient

  • Flow: Close once; lender sets up a draw escrow. Jamie approves each draw as milestones are met. After the VA appraiser’s post-construction inspection certifies the home matches the plans and MPRs, the loan modifies to permanent terms and VA issues the LGC. Benefits+1

Step-by-step: Conception to keys in hand

  1. Vision & budget

    • Sketch needs, rough budget, target location/zoning; confirm entitlement with a COE pull. Benefits

  2. Land & team

    • Secure lot (or confirm you own it). Choose a licensed/bonded builder; no VA builder ID needed for guaranty-program loans after 3/31/2025 (local licensing still required). Benefits

  3. Pre-approval & plans

    • Get pre-approved with a VA construction-to-perm lender. Finalize architectural plans/specs and fixed-price contract (include permits, contingency and—if desired—interest reserve). Benefits

  4. Order appraisal (plans & specs)

    • Lender orders the VA appraisal “based on plans and specs” (timing rules apply) and obtains the NOV. Benefits

  5. Close the one-time close

    • You close once. Funding fee is paid within 15 days. Construction funds move into a controlled draw (escrow/LIP) account. Benefits

  6. Construction & draws

    • Work proceeds. Lender obtains your written approval before each builder draw; inspections follow local authority schedules. Benefits+1

  7. Warranties & code compliance

    • Provide the required 1-year builder’s warranty (or 10-year insured plan where applicable). Where local inspections don’t occur, the lender certifies completion to VA MPR standards. Benefits

  8. Post-construction inspection

    • VA-assigned appraiser certifies the home matches the approved plans/exhibits and satisfies any NOV conditions (e.g., landscaping). Benefits

  9. Modify to permanent

    • After final inspection/CO or lender certification (as applicable), the loan modifies to its permanent terms; VA issues the LGC. Keys, photos, celebration. Benefits

If you’d like, I’ll tailor these steps to your client’s specific lot, builder contract, and target budget, and I can pre-draft the lender/builder draw schedule and your client-facing checklist.

About Between Two Doors

Between Two Doors is a podcast where I talk with Realtors about their journey, aiming to connect home buyers and sellers with agents on a more personal level. I ask "right brain" questions that go beyond transactions, focusing on the experiences, values, and passions that make these professionals great at what they do.

Listen to more episodes at: https://www.betweentwodoors.com

Sponsored by:
Premier Lending, Inc.
https://www.natecarver.com

NMLS Numbers:
NMLS: 2004738
Licensed by the Department of Financial Protection and Innovation (DFPI). Equal Housing Opportunity.
https://www.nmlsconsumeraccess.com

Contact: 972-832-5761

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Location: United States

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