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 looking to leverage their VA home loan benefits With a VA loan, qualified veterans and service members can purchase a home with no down payment But can you use a VA loan to buy vacant land to build on?
The short answer is yes, you can buy land with a VA loan under certain conditions. However, there are some strict guidelines and limitations set by the Department of Veterans Affairs (VA) that borrowers need to be aware of.
In this comprehensive guide we’ll cover everything you need to know about using a VA loan to purchase land including
- Requirements for buying land with a VA loan
- The pros and cons of using a VA loan for land
- VA construction loans: How they work
- Tips for finding a lender who offers VA land loans
- Alternatives to VA loans for land
Follow along as we break down the ins and outs of leveraging your VA home loan benefit to buy and build on raw land.
Requirements for Buying Land With a VA Loan
The VA has specific rules in place for using a VA-backed loan to purchase vacant land. Here are the key requirements:
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You must build a home on the land: The VA does not allow borrowers to obtain a VA loan for land only. You must simultaneously close on the construction of a home on the parcel.
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You must live in the home as your primary residence: As with all VA loans, you must intend to use the property as your primary residence.
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The home must be stick-built: Manufactured or mobile homes are not eligible. The home must be permanently affixed to a foundation on the land.
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The land must meet VA minimum property requirements: This relates to access, utilities, environmental safety, flood zone status, and more. Your lender will verify the property is acceptable.
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You only have 1 year to complete construction: VA guidelines require the home be completed within 12 months of closing on the land loan.
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The home can be 1-4 units: You can build a single-family home, duplex, triplex, or 4-plex on the land. All units must be complete before the VA will approve occupancy.
As you can see, the VA has strict stipulations in place to ensure the land and construction plans are acceptable for a VA-backed loan. Work closely with your lender to ensure you meet all requirements.
Pros and Cons of Buying Land With a VA Loan
Using your VA loan benefit to buy land and build a home offers some nice perks, but also comes with drawbacks to consider:
Pros
-requires no down payment for fully entitled veterans
-offers lower rates than conventional construction loans
-requires no monthly mortgage insurance
-gives you flexibility in home design
Cons
-tough to find lenders who offer VA land loans
-requires using a VA-approved home builder
-construction must be completed quickly
-won’t cover purchasing land only
-has strict requirements for the land parcel
As you weigh your options, think through the pros and cons to decide if using your VA entitlement is the right move. A VA land loan offers great benefits but also limits your flexibility as a builder.
How VA Construction Loans Work
If you meet the requirements, a VA construction loan can be used to simultaneously purchase land and finance construction of a home. This is also known as a VA construction-to-permanent loan.
Here’s a quick rundown of how these specialized VA loans work:
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You get pre-approved for a VA construction loan before selecting land. This determines your maximum loan amount and confirms you meet VA requirements.
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After choosing an acceptable lot, you close on the loan to buy the land. This may require a small down payment.
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The VA will issue periodic disbursements from your total loan amount to the builder during construction.
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Once the home is completed within 12 months, the loan converts to a permanent VA mortgage and you begin making payments.
The term of your loan begins on closing, not once construction is finished. So if building takes 6 months, you’d have a 29-year and 6-month term on your permanent loan.
As you can see, VA construction loans let you buy, build, and finance a home in one loan. Just be sure to find an experienced lender familiar with VA guidelines.
Tips for Finding a VA Land Loan Lender
One challenge with VA land loans is that not all lenders offer them. Construction loans are complex, so lenders need experience with VA rules to make them work.
Here are some tips for tracking down a lender who can get you financing to buy land and build:
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Ask your Realtor for a referral to local lenders who offer VA construction loans.
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Search online for “VA construction loans” plus your state to find specialized lenders.
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Check if any national VA lenders like Veterans United offer VA land loans in your area.
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Ask builders if they have preferred VA construction lenders they partner with.
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Be prepared to shop around and compare options from a few lenders.
The right lender will walk you through VA guidelines and ensure your plans meet the requirements to buy land and build a home with a VA-backed loan.
Alternatives to Buying Land With a VA Loan
If you aren’t able to buy land with a VA loan, you have a few options:
Finance the Land Separately
One alternative is to buy land with a non-VA land loan, cash purchase, or other financing. Then, once you own the land, you can get a VA construction loan to finance building the home. This may require coming up with a down payment to buy the lot.
Use a Different Construction Loan
You may be able to get a conventional, FHA, or USDA construction loan to finance purchasing the land and home construction. Once built, you can then obtain a VA cash-out refinance to tap into your VA loan benefit.
Buy an Existing Home on Land
If you can’t buy vacant land, you can use your VA loan benefit to purchase an existing home on a sizable lot. This allows you to live on and enjoy acreage you own without having to build a custom home.
While buying raw land with a VA loan can be tricky, know that you have options if that original plan doesn’t work out. Talk to a lender to map out the best land purchase and construction financing path for your situation.
FAQs About Buying Land With a VA Loan
Looking to buy land with a VA loan? Here are answers to some frequently asked questions on the topic:
Can I buy land with my VA entitlement and build later?
No, you cannot use a VA loan to only purchase land with the intent to build later. Construction must begin within a reasonable timeframe after closing on the land purchase.
What are the credit score requirements for a VA construction loan?
The VA itself does not dictate a minimum credit score. However, lenders typically require a score of 620 or higher for approval of a VA construction loan.
How much land can I buy with a VA loan?
The VA does not limit the acreage or size of the land parcel. However, the property must meet location and other requirements outlined earlier.
Can I use a VA loan to buy agricultural land or a farm/ranch?
No, VA loans cannot be used to purchase land for agricultural or commercial use. The property must be intended for residential living only.
Can I act as my own general contractor with a VA construction loan?
Yes, you can serve as the GC on new home construction financed with a VA construction loan. However, you still must use qualified subcontractors approved by the lender.
The Bottom Line
At the end of the day, buying land with a VA loan is possible but comes with limitations. If you need financing to purchase vacant land and build a home, explore your options and talk to lenders who have experience with VA construction loans. This will give you the best shot at using your VA benefits to create your dream home.
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.
