When it comes to purchasing a home, veterans and service members have a hard time finding a better option than the VA loan, which offers money-saving benefits like zero down payment and no mortgage insurance.
But what if you have your sights set on buying land and building a custom home instead of purchasing a preoccupied house? Can the VA loan help you achieve that?
Is it Possible to Buy Land with a VA Loan? While it is possible to buy land with a VA loan, there’s a catch – you must be simultaneously constructing a new home. You can’t use a VA loan solely to purchase land, even if your intention is to build a home on it later.
Using a VA Loan to Purchase Land Although it may sound complicated, the concept is straightforward: if you want to buy land alone, a VA loan won’t work. However, if you plan to purchase land and immediately begin construction, the VA allows it.
Here are the three options available if you want to buy land using your VA loan benefits:
- Use a VA loan to finance both the construction of your proposed home and the land you plan to build on at the same time.
- Buy land using alternative financing options and utilize your VA loan benefit to fund the construction of your home.
- Purchase land and construct your home using other financing methods, typically a short-term construction loan. Then, once the construction is complete, refinance the loan into a VA loan.
If you already own land or have inherited a parcel of it, you can utilize a VA loan to build your home on it. If you initially purchased the land using a different loan type, you may have the option to refinance into a VA loan once the construction is finished.
Check if You Meet the Official VA Loan Requirements
Rules for Buying Land & Constructing a Property As with all VA loans, there are specific requirements that must be met if you plan to buy land and construct a property using your benefits.
Here are the key requirements:
- The property you construct cannot exceed four units, and each unit must have its own water, sewage, gas, and electricity connections. Additionally, you must live in one of the units as your primary residence.
- The property must be affixed to a permanent foundation.
- The property must meet the VA’s minimum property requirements and comply with federal and local building standards.
- The land cannot be located in flood or noise zones, such as near an airstrip, highway, or railroad tracks.
- The land cannot be situated near a landfill, dump, or hazardous material facility.
- The land must not be prone to landslides, earthquakes, or other geological instabilities.
To be eligible, you’ll need a valid Certificate of Eligibility, and your builder must have a valid VA ID. For more information on VA construction loans, learn about the details here.
VA Loans for Land and Construction Are Uncommon While the VA technically permits the purchase of land and construction, most lenders do not offer VA loans for this purpose. Such loans are generally considered riskier, and if you do find a lender who offers them, you may be required to make a down payment to mitigate the risk.
To bypass this, you can consider using a construction loan or another financing product to fund your land purchase and home construction. Then, once the home is built, you can refinance into a VA loan, which allows for the traditional zero-down payment option.
In Conclusion In summary, you can utilize a VA loan to purchase land, but it comes with strict conditions. Moreover, it may not be the most straightforward or cost-effective path to homeownership.