Can You Buy Land With a VA Loan?
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.
How to use a VA loan to buy land
It isn’t possible to get a VA loan for the purchase of land alone. However, you can use a VA loan to buy land as long as the land currently has, or will soon have, a home on it.
→ 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.
Here are the VA loan options that will cover either type of land purchase:
VA construction loans
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 qualifying guidelines 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’ll get preapproved for a loan and submit plans for construction.
- You’ll use a VA construction loan to buy the land and begin construction.
- As construction progresses, the VA loan will periodically issue payouts (known as “draws”) until the home is completed.
- You’ll need to complete the construction within one year, at which point you’ll begin making payments on your permanent loan.
Keep in mind that the loan term starts when construction begins, not when it’s complete. That’s a little out of step with your payments, though, which won’t begin until construction is complete. In practice, this means you could end up with slightly larger monthly payments. For instance, 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.
Need to estimate monthly payments? Try our mortgage calculator.
VA construction loans can be hard to find
Not all lenders who offer VA loans also offer VA construction loans. And even though you may have fewer options than with a standard VA loan, it’s best to shop around for a lender that’s comfortable with the many moving parts of a construction loan. The lender will have to manage the construction project and pay the builders, so you want one with plenty of experience.
VA farm loans
A VA farm loan allows qualified buyers to become farm owners. The catch: The property must already have a personal dwelling on it, so you can’t use the loan to simply buy acreage. You’ll also need to use the land for residential purposes, which excludes buying a farm business.
Requirements for VA construction loans
Besides meeting individual eligibility requirements for a VA loan, you’ll need to make sure the land you’re eyeing, as well as 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 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.
Pros and cons of buying land with a VA loan
No payments early on. You don't have to make payments until construction is complete.
Low or no down payment. The VA doesn’t require you to make any down payment if you have full entitlement, but some lenders may require a small down payment to offset their risk.
No mortgage insurance. Unlike with other government-backed loans or conventional loans, you don’t have to pay mortgage insurance premiums.
No minimum credit score. The VA doesn’t set a minimum credit score, though lenders are free to set their own requirements.
Fewer lenders. It can be tough to find lenders who offer this complex loan type.
Larger payments than comparable purchase loans. Because construction delays your initial payments but not the start of your loan term, you’ll have higher monthly payments.
More rules to follow. The VA rules about the property’s location and construction are extensive.
Limited builders. You must use a VA-approved builder, but that doesn’t have to stop you from using the builder of your choice — they just have to be willing to go through the approval process.
Alternative ways to use VA benefits to buy land
- Buy the land with alternative financing, then use the VA loan to build a home. It might be possible to buy the land with a land loan, personal loan or cash, then use a VA construction loan to build the house. But be aware that, unless you refinance or consolidate the original loan, you’ll end up carrying two loan payments: one for the land, and one for the house.
- Buy the land and construct the home with alternative funding, then refinance the constructed home with a VA loan. A VA-backed cash-out refinance loan may offer you better terms than your original loan, as well as a cash payout for possibly paying off other debts. If you choose this option, your home must meet VA loan and property requirements. You’d typically also pay a VA funding fee and other closing costs.
VA loan alternatives
Land loan options
Land loans are designed to help you purchase land without a structure on it. The land itself can range from totally unimproved and off-grid to fully ready for residential construction. However, land loans are harder to qualify for than traditional mortgages, and they may require higher credit scores and a 15% to 35% down payment.
Personal loans typically come with higher interest rates and smaller loan limits than land loans. If you can afford the monthly payments, however, using a personal loan to buy land can offer some advantages, including fewer costs and upfront fees. You also tend to get funding faster with a personal loan, which could speed up your project timeline.
Home equity loans and home equity lines of credit (HELOCs) allow you to access a large sum of cash using your home equity as collateral. However, because you could lose your home if you aren’t able to make the payments, it can be risky to borrow this way. Home equity loan interest rates are typically higher than HELOC rates, but both are usually lower than personal loan or credit card rates.
Construction loan options
Conventional construction loans
Conventional construction loans work much like VA construction loans, but with a little bit less red tape: You won’t have to meet VA minimum property requirements or use a VA-approved builder or appraiser. You can use a conventional construction loan to cover just the cost of construction or both the construction and land. You can also use it to cover renovation costs for an existing home.
FHA construction loans
FHA construction loans put building a home in reach for borrowers with lower credit scores and less cash on hand. You can qualify for one with just a 500 credit score and 10% down payment. Just like with conventional loans, you can use an FHA construction loan to finance construction or renovations alone, or also roll in the cost of land you want to build on.