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 your dream home can be an exciting prospect for many buyers, especially veterans looking to utilize their VA loan benefits However, the rules surrounding buying land with a VA loan can be confusing In this comprehensive guide, we’ll walk through everything you need to know about using a VA loan to purchase land.
Overview: Is It Possible To Buy Land With A VA Loan?
The short answer is yes you can buy land with a VA loan under certain conditions. The VA actually offers two types of loans that allow you to purchase land – VA construction loans and VA farm loans.
However, there are limitations. The key thing to understand is that you cannot use a VA loan just to purchase vacant land or acreage on its own. The loan must be used to simultaneously finance the construction of a home on that land.
So if you want to buy land now and build later, a VA loan would not be an option. You’d need to explore other financing like a conventional land loan or cash purchase.
VA Construction Loans
VA construction loans, also known as VA construction-to-permanent loans, allow you to roll the costs of purchasing land and building a new home into one VA-backed mortgage. This is the most common way veterans can buy land with their VA benefits.
Here are some key advantages of using a VA construction loan to buy land:
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No Down Payment: With full VA entitlement, you can get a no down payment construction loan. Only closing costs are due at closing.
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No Mortgage Insurance: VA loans do not require private mortgage insurance like conventional loans.
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One Loan Terms: Instead of separate loans for land and construction, everything is wrapped into one set of loan terms.
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Delayed Payments: You don’t need to make any mortgage payments until construction is fully complete.
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Permanent Financing: Once construction finishes, the loan converts to a permanent VA mortgage with potentially lower rates.
VA construction loans work in three main phases:
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Pre-Approval – You get pre-approved for the full construction loan amount based on land purchase price, construction costs, fees, and a contingency reserve.
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Construction – The land is purchased and construction begins. The lender disburses periodic “construction draws” to the builder until work is complete.
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Conversion to Permanent – Within a year, construction should be finished and inspected. The loan converts to a traditional permanent VA mortgage.
While VA construction loans offer great benefits, also be aware of limitations:
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Lender Availability – Not all lenders offer VA construction loans, so shop around. Regional and local banks are most likely to offer them.
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Builder Requirements – Your builder must be VA-approved. Get their VA ID number before applying.
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Property Requirements – The land and project must meet VA minimum property standards for safety, structural soundness, access to utilities, and more.
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Loan Term – The term starts at the construction phase, not the permanent phase. A 1 year build essentially shortens your term by 1 year.
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Higher Payments – Because payments don’t start until construction completes, your payment will be higher than a comparable purchase loan.
Overall, VA construction loans let eligible veterans simultaneously buy land and build a home with their earned benefits. Just be aware of the particular requirements.
VA Farm Loans
The other option for buying land with a VA loan is through a VA farm loan. These loans help veterans purchase rural residential properties, farms, and agricultural lands.
A VA farm loan offers many of the same benefits as a standard VA loan, including:
- No down payment
- Lenient credit requirements
- No mortgage insurance
- Competitive interest rates
However, VA farm loans have strict eligibility guidelines:
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The property must have an existing livable dwelling. You cannot use a VA farm loan just to purchase vacant land.
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You must make the home your primary residence. VA farm loans cannot be used solely for business or rental purposes.
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The property should be rural and agricultural in nature. Properties inside city limits may not qualify.
For a veteran looking to buy acreage or a small farm, a VA farm loan can be a great option. Just remember it must have a livable home that you’ll occupy.
Key Requirements For Buying Land With A VA Loan
Beyond the standard VA loan requirements, buying land and constructing a home with your VA benefits comes with some additional criteria from the VA. These help ensure the property is safe and structurally sound.
Some key requirements include:
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1-4 Units – Properties are limited to single-family homes or up to 4-plexes.
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Primary Residence – You must intend to live in the home as your primary residence.
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Permanent Foundation – Properties must be on permanent foundations like a slab or basement.
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Access – Homes need vehicular and pedestrian access from a private or public road. Landlocked parcels would not qualify.
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Utilities – The property must have access to water, sewer, electricity, and gas utilities.
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Site Conditions – The land cannot be susceptible to flooding, landslides, sinkholes, or other environmental hazards.
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Zoning – Land cannot be zoned for agriculture, business, or commercial uses.
Your lender will order a VA appraisal during the process, which will verify compliance with these requirements.
Pros And Cons Of Buying Land With A VA Loan
Let’s summarize some of the key pros and cons of trying to buy land with a VA mortgage:
Pros
- Zero down payment options
- Avoid private mortgage insurance
- Competitive rates and terms
- Meet builder/contractor you choose
- One consolidated set of loan terms
- Payments don’t start until construction completes
Cons
- Must build within 1 year; cannot buy land only
- Tough to find lenders who offer program
- Higher monthly payments than standard loans
- Additional VA requirements to meet
- Loan term begins at construction start
As with any mortgage decision, be sure to weigh both the advantages and limitations when considering a VA land purchase and construction loan.
Alternative Options For Buying Land
If you don’t want to utilize a VA construction loan, there are a few other options veterans can consider to buy land:
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Conventional Land Loan – Banks and credit unions offer land-only loans with higher down payments, shorter terms, and stricter requirements. Down payments may range from 15-35%.
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Personal Loan – An unsecured personal loan from an online lender could provide funds to buy land outright. No collateral, but higher rates and large monthly payments.
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Home Equity Loan – If you have significant equity in your current home, a home equity loan or HELOC could provide a low-rate land purchase loan using your home as collateral.
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Cash Purchase – If possible, an all-cash purchase of your vacant land would give you full ownership and flexibility. You can later build with other financing options.
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Buy and Refinance – One option is to buy land and build with conventional financing, then do a VA cash-out refinance once the home is completed to take advantage of lower VA rates.
While it takes some effort, there are ways for most veterans to use their VA benefits to ultimately acquire land and build their dream home. Seek out qualified VA lenders who can walk you through the options and find the optimal path for your situation.
Frequency of Entities:
va loan: 24
land: 21
va: 19
construction: 10
loan: 10
build: 8
home: 8
requirements: 7
property: 6
conventional: 3
personal loan: 2
cash purchase: 1
home equity loan: 1
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.
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.