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 endeavor. However, financing land purchases can be tricky especially when it comes to securing favorable loan terms. This is where VA loans come in.
VA loans are mortgage loans guaranteed by the Department of Veterans Affairs (VA) to help eligible military members, veterans and survivors buy a home. These loans offer key benefits like no down payment and no private mortgage insurance (PMI).
But can you use a VA loan for a land purchase? The short answer is yes, you can use a VA loan to buy land, but only if you plan to build a home on it.
In this comprehensive guide, we’ll break down exactly how VA loans can be used for land purchases, including:
- VA loan options for land
- Requirements and eligibility
- Pros and cons of using a VA loan
- Alternatives if a VA loan doesn’t work for your situation
Let’s dive in!
VA Loan Options for Buying Land
There are two main types of VA loans that allow you to purchase land – VA construction loans and VA farm loans.
VA Construction Loans
The most common option is a VA construction loan. This loan covers both the cost of the land and the construction of a new home on the property.
Here’s a quick rundown of how VA construction loans work:
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You get preapproved for the loan amount needed to cover land purchase and construction costs.
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You use the loan to buy the land and start building your home.
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The lender issues periodic payouts (draws) to the builder during construction.
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Once construction is complete, the loan converts to a permanent VA mortgage and you begin making payments.
A key perk of VA construction loans is that you don’t make any payments during the construction phase, which typically takes 8-12 months. However, keep in mind the loan term still begins when construction starts. So if it takes a full year to build, you’ll have a 29-year permanent loan instead of 30 years.
Overall, VA construction loans allow you to roll everything into one loan with no down payment required.
VA Farm Loans
VA farm loans can also cover land purchases, but with strict criteria. The property must:
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Already have a house on it
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Be used as your full-time residence
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Not used as a farm business
So in essence, VA farm loans mainly apply if you want to purchase rural land or acreage that has a livable home on site. You cannot use these loans to just buy vacant land or farm properties.
Requirements for Using a VA Loan to Purchase Land
Beyond general VA loan eligibility, your land purchase and construction plans must meet certain standards for your loan to be approved. These are laid out in the VA’s Minimum Property Requirements (MPRs).
Here are some key requirements to be aware of:
Location: The land cannot be in a flood zone unless you purchase flood insurance. It also cannot be in an airport noise zone or have other potential safety hazards.
Accessibility: The property must have road access and proper easements for utilities and access.
Water/Sewer: A clean water supply and adequate sewage disposal are required. Many rural properties use well water and septic systems.
Foundation: The home must be on a permanent foundation, not a mobile home. Modular and manufactured homes are okay.
Environmental: The land cannot have environmental issues like chemical contamination.
Maximum Units: No more than four units/families, with exceptions for joint veteran purchases.
Occupancy: You must live in the property as your primary residence. Rental properties are not eligible.
Builder: You must use a VA-approved builder familiar with MPR rules.
Meeting these requirements is essential for securing VA financing. Be sure to choose land that fits within the guidelines.
Pros and Cons of Using a VA Loan for a Land Purchase
VA loans offer nice perks if you want to buy land, but also have some potential drawbacks to weigh.
Pros
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Requires no down payment or mortgage insurance
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Has no minimum credit score requirement
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Offers flexible entitlement options
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No payments needed during construction phase
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Combines land and construction costs into one loan
Cons
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Tough to find lenders that offer VA construction loans
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Stricter location and building requirements
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Higher monthly payments than a standard mortgage
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Added challenges of managing construction timeline
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Need to use a VA-approved builder
Carefully consider these advantages and disadvantages when deciding if a VA loan is the right fit for financing your land purchase.
Alternatives If a VA Loan Doesn’t Work For You
While helpful, VA loans aren’t the only option out there. Here are a few other ways to purchase land if you don’t qualify for a VA loan or want to consider alternative financing:
Land Loans – Specialized loans from banks and credit unions specifically for vacant land purchases. Often require 10-35% down payment.
Personal Loans – Unsecured loans from online lenders can provide funds for land. Quick approval but higher rates.
Home Equity Loans – Leverage equity in current home as collateral for land purchase loan.
Construction Loans – Loans that cover building costs then convert to regular mortgages. Lower requirements than VA loans.
Two-Step Purchase – Buy land with cash or other financing, then get VA loan for home. Can be complex.
Carefully compare all your options. A VA loan provides nice perks, but also comes with hurdles like strict requirements and construction coordination. Using alternative financing for the land piece may be easier, then you can use VA benefits just for the home loan.
Summary: How to Use a VA Loan for Buying Land
In closing, VA loans can absolutely be used for vacant land purchases, but only in conjunction with building a home on the property. The two main options are VA construction loans and VA farm loans.
While VA financing provides advantages like zero down and flexible credit guidelines, make sure you fully understand the requirements, restrictions, and challenges that come with using a VA loan for land.
Consider all your options and choose the path that best aligns with your financial situation and homebuilding plans. With the right financing strategy, you’ll be well on your way to turning your dream land into a beautiful forever home.
Frequency of Entities:
va loan: 16
land purchase: 9
va loans: 7
va construction loans: 5
va farm loans: 4
home: 11
land: 24
property: 5
loan: 21
requirements: 3
construction: 8
financing: 5
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.
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.
Can You Use the VA Loan to Buy Land?
Can I buy land with a VA loan?
The VA will allow it. There are generally three options if you’re looking to buy land with your VA loan benefits : Use a VA loan to finance both the construction of your proposed home and the land you intend to build it on simultaneously. Buy land using some other means of financing.
Can a VA loan be used for a farm residence?
VA loans can be a great tool for acquiring a farm residence. You can use your VA home loan benefit to purchase, build or repair a farm residence on land you own or land you plan to buy. Requirements to use a VA loan for farm land include: The VA home loans discussed above can be used to buy and build your next home.
Can a VA loan buy a house?
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. You can use a VA loan to buy land as long as the land currently has, or will soon have, a home on it.
What are the requirements for a VA land loan?
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.