If you’re a service member or a veteran who wants to build your own home, a VA-backed loan could be the best way to go.
With a VA Purchase Loan, which is a benefit of your service, you can get financing to purchase land and to build your own home, all wrapped into one mortgage. In other words, you won’t have to apply for two separate loans.
Plus, there’s no down payment required, and VA Loans are often more affordable than other mortgages. The downside is that you’ll have to meet a long list of eligibility requirements that conventional lenders don’t have, including a complex application process.
Buying land to build a home on is an exciting prospect for many people, especially veterans who have VA home loan benefits. VA loans offer significant advantages like no down payment and no private mortgage insurance. But can you actually use a VA loan to buy land?
The short answer is yes, you can get a VA loan to purchase land in certain circumstances. However, there are specific VA requirements you’ll need to meet.
In this comprehensive guide, we’ll explain everything you need to know about using a VA loan for a land purchase, including:
- Types of VA loans that allow land buying
- Requirements for the land and construction
- Pros and cons of using a VA loan for land
- Alternative options beyond VA loans
Overview of VA Loans for Land
The US Department of Veterans Affairs guarantees several types of loans that make it possible to buy land, These include
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VA Purchase Loans – Allow you to buy land and build a home on it simultaneously. The loan covers both costs.
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VA Construction Loans – A type of VA Purchase Loan used specifically for building a home on land you already own or plan to buy
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VA Farm Loans – Allow you to buy agricultural land that has a house on it. The land must become your primary residence.
The key is that the VA requires you to build and live in a home on any land bought with a VA loan. You cannot use these loans just to purchase vacant land or farmland by itself.
Additionally, you can use a VA Cash-Out Refinance after buying land and building a home through other means. This allows you to tap your home equity to pay off other debts or expenses.
Requirements for Using a VA Loan on Land
The VA has extensive requirements for property eligibility and construction standards when using their home loans to buy land. Some key rules include:
Land Requirements:
- Street access for vehicles and pedestrians
- Proper grading and drainage
- Access to water and sewer systems
- No excessive environmental hazards or noise
Construction Requirements:
- Must be completed within 1 year of loan closing
- Builder must be VA-approved
- Home must meet VA minimum property standards
Borrower Requirements:
- Meet basic VA loan eligibility rules
- Occupy home as primary residence
- Have home appraised to ensure it meets VA guidelines
Meeting the requirements can be challenging compared to a typical mortgage. But the reward is you can buy land and build a custom home tailored to your needs.
Pros and Cons of Using a VA Loan for Land
VA loans offer several advantages for buying land over conventional mortgages. However, there are some potential drawbacks to consider as well.
Pros of Using a VA Loan for Land
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No down payment – VA loans require 0% down for qualified borrowers
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No monthly payments during construction – Payments don’t start until the home is complete
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No mortgage insurance – Avoid this added cost with a VA loan
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Flexible credit requirements – No minimum credit score
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No loan limits with full entitlement – Borrow 100% of your construction costs
Cons of Using a VA Loan for Land
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Limited lender options – Not all lenders offer VA construction loans
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Strict building guidelines – The VA has extensive rules your property must meet
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Shorter loan term – Construction delays shorten the final mortgage term
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One-time VA funding fee – You’ll pay a fee of 1.4% to 2.3% of the loan amount
As you can see, VA loans offer significant perks if you can meet the requirements. But conventional loans provide more flexibility on things like property guidelines and lender choice.
Alternatives to Using a VA Loan for Land
If you decide a VA loan isn’t the right fit, here are a few other options to finance buying land:
Land Loans
Specialized land loans from banks provide financing to purchase vacant land. They typically require 15% – 35% down and have higher rates than mortgages. Land loans allow you to buy land now and build later.
Personal Loans
An unsecured personal loan lets you buy land with minimal fees upfront. Rates are usually higher than mortgages but may beat land loan rates for borrowers with good credit.
Home Equity Loans
If you have sufficient equity built up in an existing home, a home equity loan or HELOC can provide funds for a land purchase. However, these loans put your current home at risk if you default.
Construction Loans
Like VA construction loans, you can roll land costs into conventional construction loans. They offer more flexible terms but require a down payment and mortgage insurance.
Final Thoughts on VA Loans for Land
For eligible veterans and service members, a VA construction or farm loan can be a viable option to buy land you’ll build a residence on. Just be aware of the strict property and construction guidelines required.
While they come with some limitations, VA loans provide huge savings by eliminating the down payment and mortgage insurance costs that often put land ownership out of reach.
Shop around with different lenders to find the best VA loan offer if you decide this route makes sense for you. And don’t hesitate to consider alternative loans or creative solutions like buying land separately with cash if a VA loan doesn’t fit your scenario.
Frequency of Entities
VA Purchase Loans: 6
VA Construction Loans: 5
VA Farm Loans: 3
VA Cash-Out Refinance: 2
Land Loans: 3
Personal Loans: 2
Home Equity Loans: 2
Construction Loans: 2
Rules and Restrictions on Buying Land With a VA Loan
If you want to use a VA loan for land and construction, you can choose from a VA Purchase Loan or the Native American Direct Loan (NADL).
Each loan is available for specific groups. If you have at least 90 continuous days of service or you’re a military veteran, you might qualify for a VA Purchase Loan. If you’re a Native American Veteran or spouse of a veteran, you might qualify for NADL. There are other requirements that the VA imposes on land loans. It will loan you money for:
- Construction of a new home on land you already own.
- Land that already has a residence on it.
- The purchase of land that you’re constructing a home on simultaneously.
- The purchase of farmland with an existing residence where you plan on living.
Here are the other VA land loan requirements to be aware of:
One of the most challenging aspects of using a VA loan for land is making sure that the property meets a long list of requirements. Here’s an snapshot of just a few of the features your property must include:
- Street access for cars or pedestrians
- Proper drainage
- Flood insurance (if located in a FEMA Special Flood Hazard Area)
- Potable water supply
- Safe sewage system
The property should also meet local building and zoning codes and local health authority standards.
Both the VA Purchase Loan and the NADL can be used to cover any of the following property expenses:
- Cost to build a home on property that you already own or want to buy
- Purchase of a single-family home up to 4 units or a condo in a VA-approved project
- Purchase of a manufactured home or lot
- Cost of home improvements
- Energy efficiency upgrades
Builder Must Be Registered With The VA
When you use a VA loan to build a residence, you can choose your own builder, but you’ll have to work with individuals who are registered with the VA.
Beyond the VA’s requirements, your lender may also have requirements for the builder, including certain licensing or insurance requirements.