VA Land Loan Requirements: A Comprehensive Guide for 2023

Purchasing land to build a home can be an exciting prospect for many veterans and servicemembers With VA benefits like $0 down payment and no private mortgage insurance, VA loans are an attractive financing option. However, there are strict requirements when using a VA loan to buy land This article provides a comprehensive overview of VA land loan requirements and processes for 2023.

Can You Use a VA Loan To Buy Land?

The VA does allow borrowers to purchase land in certain scenarios. However, you cannot use a VA loan to buy vacant land only. The key requirements are:

• The land must have a home on it already, or you must construct a home on the land immediately. The home must be your primary residence.

• For new construction, you must complete building the home within one year of closing on the land loan

• The land and home must meet VA minimum property requirements related to safety, security, habitability, and more.

Essentially, if you are not going to build and live in a home right away, a VA loan can’t be used for just land. But if land purchase is combined with immediate construction, VA financing is possible.

VA Land Loan Options

There are two main types of VA loans that can potentially cover land purchase:

VA Construction Loans

Also called construction-to-permanent loans, these allow you to buy land and build a home in one mortgage. You can roll the costs of land purchase and construction together with no down payment required. Here’s a quick rundown of how they work:

• Get preapproved for the loan amount needed to cover land and construction costs. Submit homebuilding plans for approval.

• Use the loan to buy land and start building. The lender disburses periodic “draws” to the builder during construction.

• Construction must be completed within one year. At that point, the construction loan converts to a permanent VA mortgage and you begin making monthly payments.

VA Farm Loans

VA farm loans can be used to purchase rural residential properties with existing homes. However, there are strict limits:

• The property must have a home already constructed on it. You cannot use this loan for vacant land only.

• The property must be for residential use only. VA farm loans cannot be used to buy land for agricultural business purposes.

With both loan types, you’ll still need to meet general VA loan requirements related to your personal finances and credit.

VA Loan Requirements for Buying Land

Beyond basic VA home loan eligibility standards, there are additional requirements when using a VA construction loan to purchase land and build:

Limits on Number of Units

• Up to 4 units are allowed, as long as you live in one unit as your primary residence.

• With another eligible veteran, up to 6 units are allowed via one joint loan.

Permanent Foundations

• Any homes constructed must be permanently affixed to foundations. No manufactured or mobile homes.

Minimum Property Requirements

The VA has extensive rules around property requirements that relate to:

• Location: The land cannot be in proximity to disruptive influences like flood zones, airports, railroads, and more. An appraiser must evaluate potential noise and safety issues.

• Access: Legal pedestrian and vehicle access must be established from a public or private road. Easements for access cannot cross adjoining land.

• Drainage and Grading: The property must allow for sufficient drainage away from the home. Areas prone to flooding, erosion, or ponding are not allowed.

• Environmental Hazards: No history of issues like chemical spills, underground storage tanks, slush pits, or other contamination.

• Water and Sewer: Adequate water supply and sewage disposal facilities must be present.

• Geologic Stability: The land cannot be vulnerable to mudslides, sinkholes, avalanches, falling rocks, unstable soils, or other hazardous geographic conditions.

VA Builder Requirements

• Your builder must be VA-approved and have a valid VA Identification Number before construction starts. Some lenders require using builders from an approved list.

Meeting all requirements related to property eligibility and a VA-approved builder can be one of the biggest challenges with VA construction loans. Be sure to carefully evaluate the land and research builders thoroughly.

Pros and Cons of VA Land Loans

Pros

• $0 down payment with full entitlement
• No monthly mortgage insurance premiums
• Flexibility in home design and layout
• Potentially avoid fees and interest of bridge loan financing

Cons

• Additional VA property and construction requirements
• Potentially higher payments if build takes most of 1-year construction window
• Not many lenders offer these loans, so fewer options
• Construction loans carry more risk for lenders, so bad credit borrowers may not qualify
• Need to identify and use a VA-approved builder

While attractive in theory, in reality VA construction loans carry more restrictions than just purchasing an existing home with VA financing. Make sure you fully understand requirements before pursuing this option.

Alternatives for Using VA Loan Benefits To Purchase Land

If going the VA construction loan route sounds too complex, there are a couple alternatives for land purchase:

Option 1: Buy Land Separately, Build Home with VA Loan

• Purchase land with cash or non-VA financing like a land loan or personal loan.

• Then, obtain a VA construction loan to fund just the home building costs on your land.

• End result is you own the land free and clear, and have a VA loan just for the new home.

Option 2: Construction Loan to VA Refinance

• Buy land and build home using short-term construction loan financing.

• Once home is complete, refinance into a VA loan to obtain better rates/terms.

These options let you buy land how you want, then use VA financing for just the home portion. The key is ultimately meeting VA requirements before doing a refinance.

Finding a VA-Approved Land Loan Lender

Very few lenders offer true VA land loans that combine land purchase and construction in one loan. Even large national lenders shy away from these products due to the complexity and risk involved. Here are some tips for finding a lender:

• Local banks and credit unions are more likely to offer these construction loans than national lenders.

• Ask around at local builder networks for lender referrals.

• Search lender databases on VA.gov to find lenders that offer “VA construction” products.

• Be prepared to shop around. Many lenders will not offer this loan type.

• Ask about construction experience and portfolios when interviewing lenders. An inexperienced lender can make things very difficult.

• Inquire about additional downpayment requirements lenders may impose to offset risk.

Finding an experienced lender for a VA construction loan is key. You want a lender who is very familiar with VA requirements and has a solid history with construction lending.

The VA Land Loan Process Step-By-Step

If you determine a VA construction loan is right for you, here is a high-level overview of the process:

1. Get Prequalified

Work with a lender to get preapproved for financing. They will evaluate your income, assets, credit, and VA entitlement.

2. Find Land and Builder

Research and identify the perfect lot for your future home along with a VA-approved builder you want to work with.

3. Plans and Permits

Work with your builder to create plans for VA approval. Secure required building permits.

4. Closing and Land Purchase

Close on the loan to secure financing, then purchase the land.

5. Construction

Builder constructs home over 6-12 months with lender dispursing periodic payments.

6. Conversion to Permanent Loan

Once home is completed, the construction loan converts to a traditional permanent VA mortgage.

While the process seems straightforward, expect complexities and delays. Extensive coordination with your lender and builder will be required throughout construction.

Key Takeaways – VA Land Loan Requirements

• VA loans can be used to purchase land and construct a home simultaneously. Land-only deals are not eligible.

• Construction must be completed within 12 months of closing the loan. The home must become your primary residence.

• Beyond standard VA loan rules, additional requirements apply related to zoning, property condition, geological stability, and more.

• Your builder must be VA-approved prior to start of construction. Some lenders require using builders from a pre-approved list.

• VA construction loans are very rare. Finding a lender comfortable with this risky product will be a challenge.

• Alternatives like conventional construction financing followed by a VA cash-out refinance may be easier options.

While the VA does technically allow land loans under certain parameters, in reality there are extensive extra requirements that will apply. Make sure to fully investigate the regulations, eligibility criteria, and process before pursuing this complex financing solution.