From Just A Dream to Keys in Hand: A Contractor’s Guide to VA Construction Loans

 

What counts as “VA Construction”

  • VA allows Veterans to build a new primary residence using either a one-time close (construction/permanent) or a two-time close structure. In OTC, you close once, funds are disbursed in draws during the build, and the loan modifies to permanent terms at completion. Two-time close uses interim financing, then refis to a VA permanent loan at completion. Benefits+1

  • Appraisals can be ordered from plans & specs, VA issues a Notice of Value (NOV), and a post-construction inspection by the VA appraiser verifies the home matches the approved exhibits and VA Minimum Property Requirements (MPRs) before guaranty. Benefits

  • Builders must provide a 1-year builder warranty (VA Form 26-1859); in some jurisdictions without local inspections, a 10-year insured plan is required in addition to VA’s 1-year warranty. Benefits+2VBA+2

  • Update that helps builders: VA removed the VA builder identification number requirement for new/proposed construction in the guaranty program (effective Mar 31, 2025). You still must meet state/local licensing and compliance. Benefits

Why builders should be excited

  • Bigger buyer pool, zero-down potential: Qualified Veterans often bring no VA-required down payment (subject to NOV and entitlement), which can keep deals moving even when cash is tight. (Program mechanics in Ch. 7.) Benefits

  • Single close ≈ fewer moving parts: OTC means one closing, one set of docs, one title policy, then a simple modification to permanent after the final inspection—less churn than some private-construction + takeout structures. Benefits

  • Predictable draw management: VA permits escrowed draws aligned to milestones; lenders must obtain the Veteran’s approval before disbursements, which keeps expectations clear and reduces disputes. Benefits

  • Plan-based valuation: Appraisal from plans & specs gives you cost/allowance clarity earlier in the cycle, helping you lock scopes and schedule subs sooner. Benefits

  • Warranty structure that sets expectations: The 1-year warranty (and 10-year insured plan when required) sets a known standard. VA’s role in defect complaints is limited and time-bound—so your obligations are defined up front. Benefits

  • Less admin friction: The builder ID# elimination removed a recurring paperwork step many shops disliked. Stay licensed, insured, and compliant locally—and you’re good. Benefits

Myths vs. Facts

  • “VA takes forever.”
    Fact: Timelines hinge on complete exhibits and local appraisal turn times. VA provides a step guide for OTC processing; with plans/specs ready, NOVs and draws flow efficiently. Benefits

  • “VA will make us fix everything, forever.”
    Fact: VA’s assistance is limited; the builder supplies the 1-year warranty, and where there are no local inspections, adds a 10-year insured plan. Beyond that, VA doesn’t “run punch lists.” Benefits

  • “You must get a VA builder ID before we start.”
    Fact: Not anymore for VA-guaranteed new/proposed construction. The 2025 circular removed that requirement. Benefits

  • “Appraisals can’t be done until it’s framed.”
    Fact: Appraisals are done from plans & specs with a post-construction site visit to confirm completion to NOV/MPRs. Benefits

Contractor checklist (save this)

Company & contract

  • State/local license, insurance, and bonding documentation. (No VA builder ID needed post-3/31/25.) Benefits

  • Fixed-price contract with allowances, clear change-order language, and a milestone-based draw schedule that matches lender requirements. Benefits

Plans & exhibits

  • Full architectural plans, specs, site plan, utility confirmations, permits plan, and HOA/ACC approvals (if applicable). Benefits

  • Warranty: VA Form 26-1859 (1-year builder’s warranty) and, where required, 10-year insured plan. Benefits+1

Lender coordination

  • Appraisal ordered as purchase; loan use “Construction to Permanent”; building status “Proposed.” Benefits

  • Veteran sign-off process for each draw and documentation of milestones/inspections. Benefits

“Ideas → Keys” timeline

  1. Concept & budget alignment

    • Meet with the Veteran and lender to validate COE/entitlement and budget. Discuss OTC vs. two-time close options. Benefits+1

  2. Exhibit lock-down

    • Finalize plans/specs, site plan, allowances, permits path, and a fixed-price contract. The better the exhibits, the faster the NOV. Benefits

  3. Appraisal (plans & specs) → NOV

    • Lender orders the appraisal as “Construction to Permanent / Proposed.” NOV issued with any completion conditions (e.g., final grading/drive, landscaping). Benefits+1

  4. OTC closing & draw escrow setup

    • Single closing. Construction proceeds are placed in a controlled escrow. Draws require your milestone docs and the Veteran’s approval before release. Benefits

  5. Build phase & inspections

    • Follow local inspection cadence; when local inspections are absent, the lender certification + warranty structure applies. Keep change orders tight to avoid re-underwrites. Benefits

  6. Warranty docs & completion items

    • Prepare VA Form 26-1859 (1-year) and, if applicable, the 10-year insured plan. Ensure NOV conditions are completed. Benefits

  7. Post-construction VA appraisal inspection

    • VA appraiser confirms the home matches the exhibits and MPRs. Address any final items promptly. Benefits

  8. Modify to permanent & move-in

    • Loan modifies to permanent terms; VA issues guaranty. Keys, photos, referrals. Benefits

Draw schedule tips 

  • Front-load clarity, not dollars: Use a 5–7 milestone schedule (e.g., slab/foundation, framing, MEP rough-in, drywall, cabinets/trim, substantial completion, final). Collectable, photo-verifiable milestones help releases go faster. Benefits

  • Veteran sign-offs: Set a same-day approval habit with the buyer; lenders must obtain Veteran authorization for each disbursement. Benefits

  • Change-order discipline: Lock selections early; material swaps can trigger appraisal or underwriting re-checks that slow draws. Benefits

Common pitfalls 

  • Vague allowances → NOV surprises

    • Fix with a complete, fixed-price scope in the exhibits before the appraisal order. Benefits

  • Inspection gaps in areas without a local authority

    • Provide both the 1-year builder warranty and the 10-year insured plan and coordinate lender completion certification. Benefits

  • Admin drag from old rules

    • Stop chasing the VA builder ID; it’s no longer required for VA-guaranteed new/proposed construction. Benefits

FAQs contractors ask us

Q: Can we start site work before the OTC close?
A: Limited prep is common, but coordinate with the lender so costs and timing align with acquisition-cost rules and the NOV. (See Ch. 7 processing guide.) Benefits

Q: Who approves draws?
A: The lender administers the draw escrow and must obtain the Veteran’s approval for each disbursement; your milestone docs and any required inspections are part of the release. Benefits

Q: What exactly is the warranty requirement?
A: Provide VA Form 26-1859 (1-year builder warranty). If the locality doesn’t perform inspections, include a 10-year insured plan as well. Benefits+1

Q: Do we need a VA builder number?
A: No, not for VA-guaranteed new/proposed construction after Mar 31, 2025; maintain normal licensing/insurance. Benefits

How we partner with contractors (fast, clean, repeatable)

  • Pre-flight package: We review your standard contract, draw schedule, and warranty language against VA Chapter 7/10 checkpoints. Benefits+1

  • Exhibit checklist: Plans/specs/site/permits/HOA, templated for “plans & specs” appraisal. Benefits

  • Milestone cadence: A simple draw calendar with same-day Veteran approvals. Benefits

  • Weekly status updates: Appraisal‐NOV-build-inspection tracker your team can follow without extra emails.

If you’re a builder in TX, FL, AL, CO or TN, let’s co-create a VA-ready spec packet so every Veteran client can go from idea to keys without friction.

Sources 

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

Follow Us on Social Media:
Facebook: https://www.facebook.com/NateCarverTheMortgageGuy/
LinkedIn: https://www.linkedin.com/in/natecarver/
Twitter: https://twitter.com/NathanC90662223
TikTok: https://www.tiktok.com/@nateyourfavmortgageguy
YouTube: https://www.youtube.com/@betweentwodoors



Comments

Post a Comment

Popular posts from this blog

Meet Ashley Hart: North Texas Real Estate Expert Redefining Real Estate and Resilience

Image
  Meet Ashley Hart: North Texas Real Estate Expert If you’re looking to buy or sell a home in Flower Mound, Texas, or the North Dallas Metroplex , you need to meet Ashley Hart . With a background in marketing and architecture, she has taken the real estate industry by storm, making a name for herself as one of the top 1% of agents in her market. From Marketing to Real Estate: Ashley’s Journey Ashley’s journey into real estate started while she was working as a marketing coordinator for her father’s architecture firm . At the same time, she and her husband were investing in properties. To save on agent commissions, her husband suggested she get her real estate license. Once she started taking classes, she realized real estate was a perfect combination of her skill sets —marketing, customer service, and business management. In March 2019, Ashley earned her real estate license and embarked on her new career. The first year was tough—Ashley had zero clients . But through perseverance,...
Read more

Housing Market Analysis Empowering Realtors, Homebuyers & Sellers with the Latest Insights: May 16th 2025

Image
  Housing Market Analysis Empowering Realtors, Homebuyers & Sellers with the Latest Insights: May 16th 2025 1. Mortgage Rates in a Rangebound Market Even with daily headlines about inflation, tariffs and fiscal policy, 30-year rates have hovered between high-6% and just under 7%: May 14, 2025 national average: 6.86% (30-year fixed) 15-year fixed average: 6.08% Rates have remained “rangebound” despite CPI prints and jobs data Fed’s pause on benchmark changes keeps markets in a “wait-and-see” mode What this means: Buyers know the range. Competitive pricing and rate-buy-down strategies can keep your clients in the “sweet spot” below 7%   . 2. Strong Purchase Demand Persists Contrary to many forecasts, mortgage demand continues to hold firm—even with higher rates: New listings have normalized as spring winds down Demand has stayed between 7.25%–6.64% all year Realtor tip: Share this narrative with prospects—rates aren’t chasing buyers away What thi...
Read more

Between Two Doors: A Conversation with Joe Silzell, Grand Junction Realtor

Image
  Between Two Doors: A Conversation with Joe Silzell, Grand Junction Realtor If you’re looking to buy or sell a home in Grand Junction or Mesa County, Colorado, you need a real estate agent who understands the market, the community, and the needs of buyers and sellers. In this episode of Between Two Doors , I had the pleasure of sitting down with Joe Silzell, a dedicated real estate agent and former U.S. Marine who has built a successful career in real estate. From Marine to Realtor: Joe’s Unique Journey Joe’s path to real estate wasn’t a straight line. After high school, he enlisted in the United States Marine Corps in 2012, serving as an infantry rifleman. He had the opportunity to travel the world, gain discipline and leadership experience, and even be stationed in Hawaii, which he remembers as his favorite duty station. After five years of service, Joe returned to his roots in Grand Junction, Colorado, and began a career in law enforcement as a detention deputy with the Sheriff...
Read more