Can You Use a VA Loan to Buy Land? A Detailed Guide

Buying land to build your dream home can be an exciting prospect. With beautiful scenery and privacy, land ownership offers many advantages over suburban living. But land isn’t cheap, and financing it can be tricky. This is where VA loans come in handy.

VA loans help military service members, veterans, and surviving spouses finance homes with little or no down payment. Known for their low interest rates, these government-backed loans require no mortgage insurance either.

But can you use a VA loan to buy land? Let’s find out

The Short Answer

Yes, you can buy land with a VA loan under certain conditions. The key requirements are:

• You must construct a home on the land within a reasonable timeline usually within a year of purchasing the land. The VA will not finance standalone land purchases.

• You’ll need a VA construction loan that combines the land purchase with building costs. This loan converts to a standard VA mortgage once construction is complete.

So if you plan to build and live on the land right away, VA loans can make buying acreage more affordable. Keep reading for more details on how these loans work for land and construction.

VA Construction Loans: How They Work

VA construction loans are a type of VA-guaranteed financing that includes both land and construction costs in one loan. They allow buyers to purchase land and build a home in one fell swoop.

Here are the key steps when using a VA construction loan:

• Get pre-approved for the loan amount. This includes the price of the land plus estimated building costs.

• Find land and create construction plans. The lender will review the property and plans to ensure they meet VA requirements.

• Close on the loan and buy the land. This releases the land purchase funds but not the construction funds.

• Break ground and start building. The lender will issue pre-determined “draws” to the builder as work is completed.

• Convert to a permanent VA mortgage once construction is done. Usually within 6-12 months. Now you begin making regular principal and interest payments.

VA construction loans offer homebuilders several unique benefits:

• Zero down payment. No cash needed for the down payment if you have full VA entitlement.

• One loan for land and construction. Avoid the hassles of coordinating two separate loans.

• No monthly payments during building. Payments don’t start until the home is move-in ready.

• Potentially lower rates. VA loan rates are very competitive.

Using a VA construction loan to buy land and build truly simplifies the process. Next let’s look at the VA’s specific land and construction rules.

VA Land and Construction Guidelines

To buy land and build with a VA loan, you’ll need to follow the program’s construction criteria. These cover the property itself, the building plans, and the builders involved.

Land Requirements

The VA has minimum standards for land being purchased with a VA construction loan:

• The land can only have up to 4 housing units. Veterans can buy up to 6 units jointly.

• The property must have legal access via a public or private road. Easements may be required.

• Rural properties should have adequate water and sewage systems in place.

• The land cannot be exposed to environmental hazards or located near airfields, flood zones, or other dangers.

In other words, the VA wants to ensure the property is safe and accessible before they’ll finance it along with a new build.

Construction Plan Guidelines

The home construction plans must also meet VA specifications:

• House plans should detail a property adhering to all local codes and zoning laws.

• Builders are expected to follow best practices for quality and durability. For example, wiring and roofing should meet modern safety standards.

• Properties must be on permanent foundations. No mobile homes.

• VA appraisers determine if plans seem reasonable for the area and property.

Following these guidelines helps the VA ensure homes built with their loans are of decent quality and value.

Approved Builder Requirement

Only VA-approved builders can construct homes financed with VA construction loans. This requires builders to submit an application and meet certain criteria like:

• Having all required licenses and insurance
• Maintaining a permanent business address
• Providing proof of completed projects
• Carrying the right construction credentials for their state

Thankfully, most established construction companies already qualify or can easily get VA approval. This builder rule is mainly to prevent fly-by-night contractors from building subpar VA-financed properties.

The Pros and Cons of Using a VA Construction Loan

If you want land to build on, VA construction loans offer some nice perks. But there are also a few potential drawbacks to weigh:

Pros

• Zero down payment option
• Lower rates than conventional construction loans
• Don’t have to coordinate separate loans
• No monthly payments during construction
• Get your dream home on your own land

Cons

• Must build within 12 months, usually
• Slightly higher payments than stand-alone VA purchase loans
• Builder must be VA-approved
• May require some cash to cover cost overruns
• Can’t use loan for land purchase only

For those set on buying acreage and building, the pros seem to outweigh the cons when using a VA construction loan. Just make sure you understand the VA’s guidelines and work with an experienced lender familiar with the process.

Alternatives for Buying Land with VA Loan Benefits

What if you want to buy land now but build later? Or want more flexibility than VA construction loans provide? You still have options for leveraging your VA benefits.

Here are two alternative routes to consider:

Finance the Land Separately, Then Build

One option is to buy land now using cash or non-VA financing like a land loan or personal loan. This separates the land acquisition from the construction.

Once you own the land free and clear, you can get a stand-alone VA construction loan just to finance building costs. This avoids VA red tape around the land itself.

The catch is you’ll end up making separate loan payments on the land itself and new construction if you don’t refinance later. This increases costs but provides more flexibility.

Construction Loan Refinance

Another path is to buy land and build using short-term construction financing from a bank or credit union. This can be easier to qualify for than VA construction loans.

Then, once the home is built, you can refinance the construction loan into a standard VA mortgage. This secures the benefits of the VA loan once the house is complete.

Just keep in mind refinancing comes with closing costs, so factor those into your total costs.

Finding VA Construction Lenders

Where can you find lenders that offer VA construction loans? Start with some of the top national VA lenders:

• Veterans United – This VA specialist offers construction and renovation loans in most states. They have over 25 years of VA lending experience.

• New American Funding – A direct lender with VA construction loans available nationwide. Their “Builder Express” product caters to this niche.

• Navy Federal Credit Union – Offer VA construction loans for buying land and building a primary residence. Must be a Navy Federal member to qualify.

• USAA – Active military, veterans, and their families can get VA construction loans through USAA.

Local banks and credit unions may also provide VA construction financing, but usually on a limited, case-by-case basis. An experienced national lender can likely provide smoother processing.

Buying Land Before Construction – Things to Know

If you plan to buy land now but build later, a few tips can help:

• Seek out owner financing or a land loan from a local bank. This avoids strict lender overlays on properties without homes.

• Be sure the land meets VA guidelines before purchasing. Consider a pre-purchase inspection identifying any red flags.

• Know your budget. Property preparation like driveway installation, utility hookups, and septic can add costs.

• Research VA entitlement rules. The lifetime limit on how much VA financing you can use affects construction plans.

• Build within a few years. VA loans require you to move in as a primary resident fairly quickly after purchase.

While VA construction loans have limitations, you can craft solutions using your VA benefits in tandem with other financing options. Just make sure to factor in all costs, constraints, and guidelines when creating your unique land and construction plan.

The Bottom Line

The VA construction loan program opens the door for using your military benefits to buy land and build a home tailored to your needs. By financing the land purchase and construction together into one VA loan, you can take advantage of perks like no down payment and cheaper rates.

Just be aware that building a home within 12 months is usually required when using VA construction financing. If you need longer timelines or more flexibility, alternatives like construction loan refinances allow you to tap into VA advantages down the road.

Whichever path you choose, team up with a reputable lender familiar with VA construction loans and their intricacies. They can walk