You can use a VA loan to buy land as long as you plan to build a house on it. For military borrowers, loans backed by the U.S. Department of Veterans Affairs (VA) are an attractive option, since they don’t require a down payment and can offer better terms than a land loan from a bank or credit union.
Purchasing land to build a home on is an exciting prospect for many buyers, especially veterans and service members who have VA home loan benefits. VA loans offer key advantages like requiring no down payment and having no monthly mortgage insurance.
But can you actually use a VA-backed loan to buy land? I’ll cover all the details in this comprehensive guide
Overview of Using VA Loans for Land
The short answer is yes, you can buy land with a VA loan in certain situations You just have to follow some strict VA regulations.
The key requirements are:
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You must build a home on the land within a reasonable timeframe, usually within a year. The VA does not finance stand-alone land purchases.
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The home must be your primary residence when complete.
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Construction and the land purchase must happen together in one VA loan.
Essentially, VA loans can cover both buying land and building a home on it simultaneously. But you cannot finance just the land itself long-term.
Below I’ll explain the two main options for using VA loans to buy land to build on, as well as VA loan alternatives if you don’t qualify.
VA Construction Loans
The main way to buy land and build with a VA loan is to get a VA construction loan. These specialized mortgages work by combining the land purchase price and construction costs into one loan.
Here are the key steps in how VA construction loans work:
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You find land you want to build on and get approval for a VA construction loan amount.
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The loan funds the purchase of the land.
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As you build the home, the lender disburses staged payments (draws) to cover construction costs.
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Once the home is finished, the loan converts to a regular permanent VA mortgage with monthly payments.
VA construction loans require you to complete building the home within one year. Your loan term still starts when construction begins, not when it’s done.
For example, if construction takes a full year, you’d have a 29-year loan term left since the first year was used for building. The result is you’ll have slightly higher monthly payments than with a comparable 30-year purchase loan.
Pros:
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No down payment required
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No monthly mortgage insurance
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One loan covers land and construction
Cons:
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Slightly higher payments than standard loans
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Tighter VA building requirements
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Need to find an approved VA builder
VA Farm Loans
Another option is a VA farm loan. These loans must be used to buy a property with an existing residence already on it. The home must be used as your full-time residence.
VA farm loans allow you to purchase larger acreages in rural locations. But you cannot use the loan just to purchase vacant land or farm it as a business.
Pros:
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Finance larger rural properties with acreage
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Qualify with low or no down payment
Cons:
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Home must already exist on the land
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Must live there full-time
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Cannot be used for a farm business
VA Loan Requirements for Land and Construction
When using a VA construction loan to buy land and build, you need to follow VA guidelines for the construction itself. These cover details like:
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The location of the land and home site
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The number of units in the home
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The type of foundation and other structural requirements
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Ensuring access to utilities and environmental safety
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Hiring a VA-approved builder
Some key rules include:
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The home can have up to 4 units, but you must occupy one unit full-time.
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The land cannot be in a flood zone or have other hazards present.
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An appraisal must check for potential noise, environmental issues, etc.
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Your builder must be registered with the VA and approved.
Following VA construction guidelines is one downside to using a VA loan for land. The rules are more stringent than other construction loans.
Pros and Cons of Buying Land with a VA Loan
Benefits of using VA loans for land purchases include:
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Zero down payment required in most cases
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No monthly mortgage insurance payments
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Potentially easier to qualify than conventional construction loans
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May offer better rates and terms than other land loan options
Potential drawbacks include:
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Need to find a lender willing to do VA construction lending
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More rules to follow for construction and the land itself
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Slightly higher monthly payments than a normal VA purchase loan
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Have to identify and hire a builder approved by VA
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Overall process can be more complex than alternatives
Using your earned VA benefits can make buying land more affordable. But the limitations and extra steps required mean it may not be the best option for all situations.
Alternative Ways to Buy Land with VA Loans
If you don’t qualify for a VA construction loan, there are a couple alternative options that let you tap into your VA benefits:
Option 1) Buy land with separate financing first.
You can use a land loan, cash, or other financing to purchase land on your own. Then get a VA construction loan to fund just the home building portion.
The potential drawback is you’ll end up with two separate loans and monthly payments. However, you may be able to refinance and consolidate them later.
Option 2) Build then refinance to a VA loan.
Another choice is to buy land and build the home using short-term construction financing or cash. Once the home is completed, you can get a VA cash-out refinance loan to pay off the construction debt.
VA cash-out refis allow you to tap your home equity for things like paying off the original land/construction costs. Requirements are less strict than a VA construction loan since the home is already built.
Alternative Land and Construction Loans to Consider
If VA financing ultimately doesn’t work for your situation, here are a few other common options for funding land purchases and construction costs:
Conventional Construction Loans
Conventional construction loans are offered by private lenders and not backed by the government. You’ll likely need a higher credit score and down payment than with a VA loan. But the home specifications and property requirements are less strict.
FHA Construction Loans
FHA construction loans only ask for a minimum 3.5% down payment. Credit score requirements start at just 500. The FHA will also finance manufactured homes. But like VA loans, they have tighter construction guidelines.
Land Loans
Stand-alone land loans can be used to buy a vacant lot to hold for future building. Requirements are tougher than standard mortgages and you’ll need around 20% down. But they can be an option if you’re unable to finance the land purchase through other means.
Personal Loans
Personal loans typically have higher interest rates, but are faster to close and have fewer qualification barriers than specialized land loans. If you can afford the payments, they’re one way to pull together funds for a land purchase.
The Bottom Line
At the end of the day, VA loans can be used to buy land as long as a home will be built on it right away. It’s best to work with an experienced lender familiar with VA construction lending guidelines.
And if you don’t ultimately qualify for a VA construction loan, alternative options like conventional construction loans, land loans, or personal loans are available too. While not as ideal, they can still make land ownership and building your own home possible.
How to use a VA loan to buy land
If you’re planning to build a home yourself, a VA loan can make it easier to finance the purchase of the land it’ll sit on. You can also use a VA loan to purchase an already-existing home that’s sitting on a plot of land.
There are two VA loan options that will cover your land purchase: VA construction loans and VA farm loans. We’ll walk through both in more detail below.
A VA construction loan lets you roll the costs of purchasing land and building a home into one mortgage, with no down payment and fewer requirements than conventional construction loans. VA construction loans are considered “construction-to-permanent loans” because the construction part of the loan is converted to a permanent mortgage once the home is built.
Here’s how it works:
- You get preapproved for a loan and submit plans for construction.
- You use a VA construction loan to buy the land and begin construction.
- As construction progresses, the VA loan periodically issues payouts (known as “draws”) until the home is completed.
- You need to complete the construction within one year, at which point you’ll begin making payments on your permanent loan.
Your monthly payments won’t begin until construction is complete, but the loan term starts when construction begins, not when it’s complete. This means you could end up with slightly larger monthly mortgage payments. For example, say construction takes a year to complete — going forward, you’ll have the payments associated with a 29-year loan, rather than a 30-year loan.
A VA farm loan allows qualified buyers to become farm owners. But this type of loan comes with some limitations:
→ The property must already have a house on it, so you can’t use the loan to simply buy acreage. → You need to use the land for residential purposes, which excludes buying a farm business.
Requirements for VA home construction loans
Besides meeting individual eligibility requirements for a VA loan, you’ll need to make sure the land you want and your construction plan meet VA criteria. The requirements having to do with accessibility, safety and habitability are called Minimum Property Requirements (MPRs). Some of the most important rules include:
- Number of units: Up to four family units, unless you’re buying with another veteran. In that case, you can purchase or build up to six family units.
- Occupancy: You must live in the property as your primary residence.
- Street access: Properties must have pedestrian and vehicle access from a public or private street.
- Easements: You must have access to your future home without passing onto adjoining properties. and if any easements are necessary, they’ll need to be legally transferable to a new owner.
- Drainage, soil and other hazards: The property needs to be graded to allow drainage from the home and prevent pond formation. Your VA home appraisal will also need to take note of dangerous topographic conditions, like those that might lead to avalanches, mudslides, sinkholes, unstable soil or falling rocks.
- Flood insurance: If the land is located in a FEMA Special Flood Hazard Area (SFHA), you’ll need to buy flood insurance in order for your loan to go through.
- Water and sewer: Your property must be able to provide a continuous supply of safe and drinkable water, as well as a safe way to dispose of sewage (like a septic tank).
- Environmental problems: Your appraiser will need to report potential environmental problems, such as slush pits, underground storage tanks, or chemical contamination.
- Proximity to airports: Land near airports must be evaluated for potential noise and safety concerns.
Can You Use the VA Loan to Buy Land?
Can I buy land with a VA loan?
The VA will allow it. There are generally three options if you’re looking to buy land with your VA loan benefits : Use a VA loan to finance both the construction of your proposed home and the land you intend to build it on simultaneously. Buy land using some other means of financing.
Can a VA loan be used for a farm residence?
VA loans can be a great tool for acquiring a farm residence. You can use your VA home loan benefit to purchase, build or repair a farm residence on land you own or land you plan to buy. Requirements to use a VA loan for farm land include: The VA home loans discussed above can be used to buy and build your next home.
Can veterans use VA home loan benefits to buy land?
The best way for veterans to use their VA home loan benefits to buy land is by starting home construction right after buying the land. The benefit of this method is the opportunity for borrowers to roll the total cost of land and construction into one loan.
Can a VA loan buy a house?
For military borrowers, loans backed by the U.S. Department of Veterans Affairs (VA) are an attractive option, since they don’t require a down payment and can offer better terms than a land loan from a bank or credit union. You can use a VA loan to buy land as long as the land currently has, or will soon have, a home on it.