Can You Buy Land With A VA Loan? – Forbes Advisor

Homebuyers are not limited to using a conventional loan. U.S. active-duty military service members, reservists or National Guardsmen, veterans and eligible surviving spouses can take advantage of the Veterans Affairs (VA) loan program.

VA loans help military members and their families achieve homeownership with no down payment or private mortgage insurance required. But VA loans can be used for purposes other than buying an existing home, such as buying land and building a new home.

Can You Buy Land With a VA Loan?

You can’t use VA loans solely to buy land. However, you can use a VA construction loan to buy land and build a new home. Once the home is built, the construction loan is converted into a permanent VA loan.

VA loans offer military homebuyers some unique perks, such as 0% down, no mortgage insurance requirement, competitive interest rates from VA-approved lenders and maximum closing costs. However, the VA sets strict rules for the type of home you can build and the land itself.

Rules for Using a VA Loan To Buy Land and Build a Home

With a VA loan, you can buy land and start construction immediately. This is good for buyers who want to build their homes from the ground up. However, buyers can only use a VA loan to secure land if they plan to build right away.

To use a VA loan to buy land and build a home:

• The property can be a single-family home, a manufactured home or a multi-family home with up to four units. However, you must live in one of the units as your primary residence.
• The property must be built on a permanent foundation.
• The home must meet all VA minimum property requirements to ensure it is safe, sound, sanitary, and in compliance with local and federal building standards.
• The land cannot be located near a landfill or hazardous waste site, in a flood or noise zone or near an area susceptible to natural disasters (i.e. sinkholes, earthquakes, avalanches or landslides).
• The land must have positive, rapid drainage leading away from the property.
• The property must be accessible without passing through any adjoining properties. Any required easements must run with the land.
• The property must have pedestrian and vehicle access from either a private or public street.

Not all lenders offer VA construction loans, which might limit your options. So, be sure to shop around with multiple lenders.

How To Use a VA Loan To Buy Land

In most cases, you can use a VA construction loan to buy land and pay construction costs. After the home is built, this loan is converted into a permanent VA loan.

A VA-approved lender will finance the construction of the home and land simultaneously. However, before the builder receives any payment, the lender obtains written approval from the borrower at each disbursement. You must close on a VA construction loan before construction can begin. The newly constructed home must be inspected by a VA-approved home inspector at the end of the process.

One perk with a VA construction loan is that you won’t start making payments until after construction is complete. This could give you a bit of breathing room, but keep in mind this could mean larger monthly payments in the long run. For example, let’s say it takes six months to complete construction and you have a 30-year loan. This means your repayment will take 29 years and six months. You might get a buffer when repayment starts, but your final payment date doesn’t change.

VA construction loans offer multiple draw periods, where the lender makes regular payouts to the builder with the borrower’s approval.

Alternatively, you can purchase land with a different form of financing, such as a conventional mortgage, then use a VA construction loan to build the property. Once the property is completed, you can refinance both loans into a permanent VA loan.

If you want to avoid the red tape of a VA construction loan, you can use a short-term conventional loan to buy land and build a new home. As long as the finished property and land meets the VA’s minimum property requirements, you can refinance the conventional mortgage into a VA loan.

Alternatives To Buying Land With a VA Loan

Not everyone qualifies for a VA loan. Even if you do, VA construction loan rules might make it hard to find a lender or add more hoops to jump through. Consider these other homebuying options.

Buy an Existing Home

You might have more options within your VA loan if you buy an existing home. Standard VA purchase loans have fewer restrictions than VA construction loans, and you’ll be able to move into your home quicker, too.

Try a Different Type of Mortgage

VA loans account for a smaller fraction of total mortgages. Conventional loans are the most popular option since they work for most people. Also consider looking into Federal Housing Administration (FHA) loans or United States Department of Agriculture (USDA) loans, which are also federally-backed loans with different requirements.

Bottom Line

Using a VA loan to buy land is possible, but you’ll have to follow a specific set of rules before diving in. Because not all lenders offer VA construction loans, it might be harder to find a lender that offers this option versus one that offers a standard VA loan. It’s important to compare all your options, including different types of loans and various lenders, before making your final decision.