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VA Loans for Land: A Guide to Buying Land with a VA Loan

va loans for land

If you’re considering using your VA loan benefit for a land purchase, you probably have a lot of questions about how it works, how much land you can purchase and what the requirements may be.

Your VA loan benefit is meant to make the dream of owning a home a reality.  However, using your benefit to purchase land to build a home is probably one of the more complicated uses of the VA loan program. It’s important for you to know right from the start that the VA cannot guarantee loans for the “purchase of unimproved land with the intent to improve it at some future date.” In other words, you cannot use your VA loan to purchase only land.

While the VA will technically allow you to use your loan for land in conjunction with a construction loan, it is unlikely you’ll find a lender to complete the transaction.  

In this guide, we’ll cover the ins and outs of using a VA loan to purchase land, and the alternative strategies you can use if plan A doesn’t work out.

Buying land with a VA loan

The VA allows for the simultaneous purchase of land in conjunction with a construction loan. It also allows for the construction of a residence on land already owned by the veteran. In both cases, the land is limited to 20 acres and the loan is limited to less than four units.

According to VA minimum property requirements, “each unit unit must have sanitary facilities and enough space to assure suitable living, sleeping, cooking and dining.” In addition, the units may share laundry facilities and heating, but they must have their own water, sewer, gas, and electric hookup.

A common tactic suggested by the experts we spoke with is to purchase the land without using your VA loan, use a construction loan to build your residence and then refinance your short-term construction loan into a long-term mortgage loan after the construction is complete.

Conditions for using a VA loan to buy land

It is important to research and understand the general eligibility requirements of VA loans, which are based on your military service, credit score, debt-to-income ratio and cash flow.

Then, if you plan to buy land to build a new home, you need to know some special conditions that apply to using VA loans for land:

1. The purchase must be for the purpose of building a primary residence

Whether you plan to purchase a single-family home for yourself or a multifamily property with up to four residential units, you must occupy the property as your primary residence. This means you cannot simply purchase the property for the purposes of renting it out without actually living on the property yourself. So in the case of purchasing four units, you could live in one and rent the other three, but you couldn’t rent all four.

2. The land cannot be located in an area considered at risk of flooding

This may include locations designated as Special Flood Hazard Areas as well as other areas prone to flooding. Certain coastal barrier areas are also ineligible. FEMA offers a flood map service where you may enter your address or coordinates to see if you’re in a high-risk area. Pro tip: If flood insurance is generally not available in an area, there’s a good chance you won’t be able to use a VA loan to buy land there.

3. The land cannot be in a noise zone

This includes being within a mile of an airfield, 3,000 feet of a railroad or 1,000 feet of a highway, freeway or heavily traveled road. The Federal Aviation Administration offers maps to help determine noise exposure. You may also look at the National Transportation Noise Map to determine noise levels. However, you’ll want to use your real estate professional as well as your own eyes to scout the area prior to purchase. If you see an airfield, railroad or freeway nearby, you’ll want to attain confirmation from an inspector that you still meet VA loan requirements.

4. The land cannot be near hazardous material

This includes being within 2,000 feet of any facility handling or storing explosive or fire-prone materials or 3,000 feet of dump or landfill. Again, scout the area where you’re purchasing the property and rely on the experience of your real estate agent to make sure you’re in compliance. Taking a quick drive around the neighborhood (about half a mile) should alert you to any warehouses or businesses that may look to be storing materials as well as a dump or landfill. An formal inspection will determine your exact eligibility prior to closing.

5. The land must be situated away from certain utility easements

An easement is the right to use land by another person or entity who does not own the property. These include easements for high-pressure gas, liquid petroleum or high-voltage electrical lines. If any part of the proposed residence is on such an easement, the project is ineligible for a VA loan.

The easiest way to determine if there is a utility easement on a property it to call the utility company. No one wants to have to go down to the county land records office or city hall to pull out a map to determine easement locations. Of course, your real estate agent can always help you order a title report, which will also show any utility easements. Another option is to have the land surveyed.

6. The land cannot be susceptible to geologic instability

This includes unstable earth, excessive slopes, earthquakes, landslides and sinkholes. Your real estate agent will help work with you to determine if any of these are present. The owner of the property has a legal obligation to disclose what he or she knows about the property, but a land survey by a qualified professional is always advisable to determine any issues. You may ask the current owner if a land survey has been done and if you may review it. You may also check to see if your state offers a homebuyer’s guide to geological hazards, like this one, to help you identify potential hazards indigenous to the area.

7. The builder must provide a reasonable basis for appraisal

This includes detailed plans and specs of the proposed building drawn up by a qualified professional. If you overbuild or otherwise build an uncommon home, you may end up paying for it when the appraisal comes in lower than what you needed to cover the cost, and you’ll be responsible for making up the difference.

8. The proposed home must be attached to a permanent foundation

Per the VA, you may use a VA loan to purchase land and move a manufactured home or mobile home onto it, but that home must then be attached to a permanent foundation. In other words, that home can no longer be mobile.

9. Construction must comply with federal and local building requirements

The construction must meet all local code requirements and conform with “VA Minimum Property Requirements, including the energy conservation standards of the 1992 CABO Model Energy Code and the requirement for lead-free water piping.”

Your best bet is to work with a builder familiar with Department of Housing and Urban Development requirements, as well as any applicable state and local zoning laws and building codes.

10. You may be able to refinance land you already own

If you already own land that you want to build on, you may be able to refinance the loan you used to purchase that land with a VA loan after the construction of your house, as long as the property meets VA appraisal standards.

How much land can you buy with a VA loan?

According to the Department of Veterans Affairs, you may use your VA loan benefits to purchase land in conjunction with plans for immediate construction. The only requirements are that the land is suitable for building and is under 20 acres.

Will lenders fund a VA land loan?

Unfortunately, VA loans for land purchases are essentially nonexistent. The reason for this is although the VA will guarantee a land loan, few, if any lenders offer it, making it impossible to attain.

A refi strategy is more common. Essentially, veterans will purchase the land separately, then take out a construction loan to build their house and use their VA loan benefits to refinance that loan later.

In order to take full advantage of your VA loan benefit, veterans are encouraged to also make use of the energy-efficient mortgage, which provides up to an additional $6,000 to a veteran making energy-efficient improvements.

How much can I borrow?

VA loan limits are set by the Federal Housing Finance Agency (FHFA). In 2018, the limit was increased again to $453,100. In 2017, the loan limit was $424,100.

Summary

Finding a lender to complete a land purchase may not be possible, but that doesn’t mean you can’t purchase the land in a separate agreement, take out a short-term construction loan, then use your VA loan benefit to refinance the whole thing.

Just make sure you don’t overbuild and make sure your appraisal comes in on target for your VA loan, otherwise, you’ll end up paying the difference.

Additional Resources

Here are some additional resources to help you get started with your VA loan.

 

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