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

Purchasing your dream property and building a home from scratch can be an exciting prospect. However, financing such a project requires careful planning, especially when using a VA home loan. While VA loans offer military service members and veterans significant benefits like no down payment and no private mortgage insurance requirements, the program has strict rules regarding buying land and new construction.

In this comprehensive guide, we’ll break down everything you need to know about using a VA home loan to buy land and build a house.

Overview of VA Home Loans

First, let’s quickly recap the basics of VA home loans. These government-backed mortgages are available to:

• Active duty service members
• Veterans
• Surviving spouses
• National Guard members
• Reservists

Key benefits include

• Zero down payment required
• No monthly mortgage insurance
• Competitive interest rates
• Option to roll closing costs into the loan
• No prepayment penalties

VA home loans can be used to

• Buy an existing home
• Refinance an existing VA loan into a lower rate
• Purchase and renovate a home through the VA Renovation Pilot Program
• Buy land and construct a new home through a VA construction loan

Now let’s focus on that last use case – using a VA loan to purchase land

Can You Buy Land With a VA Home Loan?

The short answer is yes, you can buy land with a VA home loan, but with limitations.

You cannot use a VA loan just to purchase land or vacant property by itself. The loan can only be used to buy land if you will simultaneously build a home on it. The VA does not finance standalone land purchases.

• Land-only purchase? No VA loan allowed
• Buying land and building right away? VA loan is possible

This strict rule is because the VA program is intended to help veterans and service members buy homes, not vacant plots of land for investment purposes. The property must become your primary residence within a reasonable timeframe after purchase.

Now let’s explore the details of how to buy land and build with a VA home loan.

Construction Loans from the VA

If you want to buy land and build a home using VA financing, you’ll need to apply for a VA construction loan.

Here’s an overview of how these loans work:

• The loan covers purchase of the land + construction of the new home
• The land cannot be purchased separately with a VA loan first
• You work with a builder to construct the home
• A lender disburses payment to the builder at pre-determined stages of construction
• Once construction is complete, the VA construction loan converts into a permanent VA mortgage

It is challenging to find lenders that offer VA construction loans, so make sure to shop around extensively. Some key lenders to consider include Veterans United, New American Funding, and Navy Federal Credit Union.

The property and land must meet the VA’s minimum standards throughout the process. This includes requirements like:

• Single-family home or multi-family with up to 4 units
• Home must be permanently affixed to the foundation
• Must adhere to all local/federal building codes
• Land cannot be in a flood zone or hazardous area

Using a VA construction loan requires patience. You will not need to make loan payments during the building phase, but this also means your repayment timeline does not begin until construction is 100% finished.

Overall, VA construction loans give eligible borrowers a viable zero-down financing option for new construction, but the program rules limit flexibility.

Alternative Options for Buying Land

If the restrictions of the VA construction loan don’t work for your situation, you may want to consider these alternative options instead:

Short-term conventional construction loan: You can buy the land and build the home using a shorter term, non-VA construction loan first. Once the new home is move-in ready, you can obtain a standard VA mortgage to pay off the initial construction loan. This avoids the VA construction loan requirements.

Purchase land separately: You can buy land with cash or conventional financing. Later on, you can get a typical VA purchase loan just for the completed home once it meets VA standards. The land purchase and home loan are kept separate.

Inherited land: If you already own land or inherited a property, you can use a VA purchase loan just to build a home on that land. No need to combine the land/home into one VA construction loan.

Refinance: If you used non-VA financing to buy land and build, in some cases you may be able to refinance into a VA loan after the fact to take advantage of better rates/terms.

Key Takeaways

The VA home loan program provides unique benefits to eligible service members and veterans, but has limitations when it comes to buying land and constructing a home. Key points to remember:

• You can only buy land simultaneously with home construction through a VA construction loan
• VA loans cannot be used for standalone land purchases
• Shop extensively for a lender that offers VA construction loans
• Alternatives include conventional construction loans, buying land separately, or refinancing

Carefully consider all your financing options before moving forward. And work closely with an experienced loan officer familiar with VA program guidelines. This will help ensure your dream of building a custom home on your ideal property can become reality!