Can You Buy Land With a VA Loan?

Q: I want to use my VA loan benefits to buy a home, but nothing on the market fits my needs. I’m considering buying a lot in a neighborhood and building a home on the land. Is it possible to buy land with a VA loan?

A: Many active and former service members turn to their VA home-buying benefits when shopping for a new home. Through the Department of Veterans Affairs (VA) home loan program, veterans and other eligible service members—as well as eligible surviving spouses—can finance home purchases without needing to make a down payment or pay mortgage insurance. But what if the preference is to purchase land instead of an existing home? Can you buy land with a VA loan?

The answer is yes, but only for those who plan to buy land and immediately build a home on it. In other scenarios, however, borrowers will not be able to finance a land purchase with their VA benefits.

Eligible borrowers can buy land with a VA loan if they begin construction on their new home right away.

A VA loan mortgage is a type of home loan offered by private lenders to qualifying veterans, military service members, and eligible surviving spouses. There are two types of VA loans to consider for the purpose of buying property: standard purchase loans and construction loans.

Traditional VA loans are similar to conventional mortgages in terms of how they function in that an approved borrower uses loan funds to purchase an already-built home. The difference is that VA loans don’t require a down payment or mortgage insurance. VA home loan rates also tend to be somewhat lower than conventional mortgage rates. However, eligible service members can’t use this type of loan to buy land.

VA construction loans, on the other hand, are essentially VA loans for land and property. Borrowers can use these loans to finance the purchase of both the land they want to build on and the construction of the home. Construction VA loan requirements limit how long the land can sit empty before construction begins, though. In most cases, borrowers must plan to start building their new home on the land without delay.

However, land purchases cannot be financed with a VA loan if the borrower intends to buy now and then build at a future date.

Buying land and building a home from the ground up can be an expensive proposition, and prospective borrowers may decide they want to buy land first and then build their dream home down the line. Waiting a few years can give them time to save up money to put toward the construction of the house.

Veterans hoping to use a VA loan to buy land and build a home don’t have this option, though. Jason Bower, vice president of lending at Epic Mortgage, a VA-approved lender, explains that VA loans do not allow borrowers to purchase land alone.

“VA loans are only for primary residence purchases,” he says. “You can do a new-construction VA loan, and that would [allow the borrower to] purchase the land and build the home. However, you cannot purchase ‘land only’ with a VA loan.”

Borrowers are required to begin construction immediately after securing the land to qualify for a VA construction loan. However, eligible borrowers can still potentially use their VA benefits to buy land and build a home by using alternative financing to:

• Purchase land in advance with another type of loan and then apply for a VA construction loan when it’s time to build; or
• Buy the land and build the house with financing from one of the best construction loan lenders (such as Flagstar or U.S. Bank), then refinance the mortgage with a traditional VA loan.

With a VA construction loan—also known as a VA land loan—home buyers can pay for both the land and the home’s construction with the same mortgage.

The best way for veterans to use their VA home loan benefits to buy land is by starting home construction right after buying the land. The benefit of this method is the opportunity for borrowers to roll the total cost of land and construction into one loan. Using a VA construction loan for both the land and building could help veterans and service members save money over financing land and construction separately. Like traditional VA loans, VA construction loans give veterans access to competitive interest rates, favorable mortgage terms, and flexible down payment requirements.

Borrowers will want to note that not all mortgage lenders offer VA loans. On top of that, not all VA-approved lenders offer VA construction loans. Additionally, meeting standard VA loan qualification requirements doesn’t guarantee a borrower will qualify for a VA construction loan. When searching for a qualified lender, home buyers may want to request a VA loan preapproval letter so they can determine how much financing they qualify for—especially if they need to get a VA loan to cover the cost of buying land and building a new house.

Any land that borrowers plan to build on will need to meet VA property requirements, including access to streets, utilities, and potable water supplies.

When buying property with a VA loan—whether it’s an existing house or land for construction—home buyers need to be aware that the property must meet strict requirements to qualify for VA-backed financing. Most of these requirements relate to legal access to the property and protection from potential hazards. Since the VA is guaranteeing the loan, the agency wants to be sure the property is safe, accessible, and habitable.

Requirements for properties to be eligible for a VA construction loan include:

• Street access: Properties financed with a VA loan must have vehicle and pedestrian access via a public or private street.
• Soil hazards: There must be ample drainage away from the home or building site, and any potential hazards, such as unstable soil or falling rocks, must be noted.
• Easements: Any easements on the property must be legally transferable to the new owner.
• Potable water: There must be reliable, permanent access to safe drinking water.
• Sewage: The property must have a safe method of sewage disposal, such as access to municipal sewage lines or a septic system.

Borrowers must also hire a VA-approved builder or construction company in order to qualify for a VA construction loan.

Home buyers who plan to buy land and build a home with a VA construction loan can’t work with just any builder. The VA requires borrowers to work only with VA-approved and registered builders and construction companies to build a home with VA-backed financing. The mortgage lender may also have requirements for the builder, such as licensing or carrying specific insurance coverage. With that in mind, veterans and service members may want to spend some time researching the best home builders to find the right fit to meet their needs and the requirements outlined by the VA and their mortgage lender.

After finding an approved builder, borrowers generally must submit construction plans to their lender for approval. The lender will look over the plans to ensure the home is being built according to VA guidelines.

Although tiny houses, mobile homes, and manufactured homes are not excluded from VA land loans, structures need to have a permanent foundation to be eligible for financing.

With the rise in popularity of tiny-house living, many veterans and service members may wonder whether they can use VA loan funds to buy land and build a tiny home or manufactured home. In many cases, a VA construction loan can be used to build a tiny home, a manufactured home, and even some mobile homes. The structure of the home must be on a permanent foundation to qualify for a VA loan, though. For example, a tiny home or mobile home placed on a towable trailer wouldn’t qualify, whereas one built on a permanent concrete foundation might be eligible for VA-backed financing.

Another issue borrowers may face when trying to finance the purchase of a tiny home or manufactured home involves the appraisal. Tiny homes, mobile homes, and manufactured homes are generally more difficult to accurately appraise due to a lack of comparable properties. Lenders may be unwilling to finance the construction of a tiny home if they’re unsure of the value of the property.

Once construction is complete, the home will need to be inspected by a VA-approved inspector to verify that it meets the minimum property requirements.

The VA sets property requirements for any home purchased with a VA loan, including those built with a construction loan. Requirements for the land, such as water access and easements, are usually inspected before construction begins. After construction wraps up, however, a VA-approved inspector checks to make sure the property meets minimum requirements related to:

• Size
• Utility access
• Structure and soundness
• Zoning and building codes
• Pest inspection

This inspection process can result in a longer loan-approval process, and it may take longer for borrowers to close on a VA construction loan than with a conventional mortgage. Some home buyers may choose to use alternative financing to purchase land and build a home to avoid the timeline restrictions associated with a VA loan. They could then apply for a VA loan refinance with one of the best mortgage refinance companies (such as PNC Bank and Caliber Home Loans) at a later date, replacing their original mortgage with a VA loan offering lower interest rates. However, a refinanced home must still meet the VA’s minimum property requirements before the new mortgage can be finalized.

The VA does not set limits on property size, but mortgage lenders may be hesitant to approve a loan on oversize properties.

There are no specified acreage limits on VA construction loans. In theory, a borrower could use a VA construction loan to buy hundreds of acres of land and build a home. In practice, however, it’s unlikely that a lender will approve such a loan. Lenders tend to shy away from large land purchases due to the increased risk that comes with financing an oversize property. For instance, if the borrower defaults on the loan, the lender must deal with recouping costs by selling off the large plot of land, which is often more difficult than selling smaller properties.

Appraising oversize properties can be tricky too since lenders may have a hard time finding comparable properties to accurately determine the land’s market value. The maximum VA loan amount could also limit how much land a borrower can buy if they don’t have their full entitlement. A borrower’s entitlement is the amount the VA is willing to pay to their lender if they default on their mortgage. The maximum generally varies by county, so borrowers may want to check the loan limit in their county and calculate their remaining entitlement before applying for a loan. When borrowers take out a VA loan, they use a portion of their entitlement, which they can restore by repaying their mortgage. The VA may guarantee a smaller percentage of a home loan when borrowers have a reduced entitlement, and that may impact how much they qualify for with a VA loan.

While there are restrictions to buying land with a VA loan, it could be the right financing option for eligible borrowers who have found the perfect spot to build their dream home.

Veterans and service members who are ready to buy land and build their new home may find a VA construction loan to be the perfect financing option. Before construction can begin, however, borrowers must find the right mortgage lender that offers VA construction loans. Borrowers must also meet a lender’s eligibility standards when applying for a VA loan: minimum credit score requirements, maximum debt-to-income (DTI) ratios, and employment status, among other factors. While the VA doesn’t set a maximum DTI ratio or minimum credit score for VA loan approval, even the best VA mortgage lenders like PenFed and Navy Credit Federal Union will likely have their own minimum credit score requirements.

It may be a good idea for borrowers to reach out to multiple lenders when shopping for VA construction loans. Getting loan quotes from multiple lenders gives borrowers the chance to compare lending terms, get the best mortgage rate, and find financing that fits their needs.