VA loans are widely known for their benefits in helping veterans and service members purchase homes with no down payment, lower interest rates, and no private mortgage insurance (PMI). But did you know that VA loans can also be used to purchase land? However, this process is slightly different from using a VA loan to buy a home directly.
If you’re looking to buy land and eventually build a home, it’s important to understand how a VA loan can help you achieve that goal.
In this guide, we’ll break down how VA loans work for buying land, including the necessary steps, restrictions, and potential benefits. We’ll also cover up-to-date housing market data, expert insights, and frequently asked questions related to using a VA loan for land purchases.
How Does Using a VA Loan to Buy Land Work?
A VA loan can be used to buy land, but it comes with some specific requirements. The most important thing to know is that you cannot use a VA loan to simply buy land without plans to build. Here’s how the process works:
- Construction-to-Permanent Loan: VA loans for land purchases are typically tied to construction loans. This means you will need to secure a construction-to-permanent loan, which covers both the purchase of the land and the construction of your home. Once the home is complete, the loan transitions to a traditional mortgage.
- Immediate Building Requirement: The VA requires that you begin building your primary residence on the land within a reasonable time frame. This is not a loan option for those looking to buy land and hold onto it for future use.
- VA Loan Guarantee: Like all VA loans, the VA guarantees a portion of the loan, which reduces the risk for lenders. This guarantee makes it easier for veterans to secure financing without the need for a down payment or private mortgage insurance (PMI).
How to Buy Land with a VA Loan?
Buying land with a VA loan can be a bit tricky, but the basic rule is straightforward: If you’re purchasing just the land without immediate plans to build, a VA loan won’t cover it. However, if you plan to buy land and build a home right away, the VA loan can be a viable option.
Here are the three main ways you can use your VA loan benefits to purchase land:
-
Use a VA Loan for Both Land and Construction
The most straightforward way to buy land with a VA loan is to finance both the land purchase and the construction of your home simultaneously. This is typically done through a construction-to-permanent loan, which covers the cost of both the land and the construction in a single loan package. Once the home is complete, the loan converts into a standard mortgage. -
Buy Land with Alternative Financing and Use a VA Loan for Construction
In this scenario, you purchase the land using other financing, such as a land loan, and then use your VA loan benefit to fund the construction of your home. This method gives you more flexibility if you’re not ready to build immediately but want to secure the land first. -
Finance Land and Construction with a Short-Term Loan, Then Refinance into a VA Loan
Another option is to take out a short-term construction loan to finance both the land and the home build. Once the construction is complete, you can refinance the construction loan into a VA loan. This strategy can be useful if you’re working with a lender who specializes in construction loans but also want to take advantage of the long-term benefits of a VA loan, such as lower interest rates and no PMI.
What are the Rules for Buying Land with a VA Loan?
If you’re planning to use your VA loan benefits to buy land and build a property, there are several specific requirements you’ll need to meet. Here are the key ones:
- Multi-Unit Property Limitation: The property you construct can have no more than four units. Each unit must be independently connected to water, sewage, gas, and electricity, and you must occupy one of the units as your primary residence.
- Permanent Foundation: The property must be built on a permanent foundation, ensuring it meets the VA’s standards for long-term housing.
- VA Minimum Property Requirements: The home must adhere to the VA’s minimum property standards, as well as all federal and local building codes.
- Location Restrictions: The land must not be located in high-risk zones, such as floodplains, or near noise-prone areas like airstrips, highways, or railroad tracks.
- Environmental Restrictions: The land must not be close to landfills, dumps, or hazardous material sites, nor can it be in areas prone to landslides, earthquakes, or geological hazards.
In addition to these rules, you’ll need a valid Certificate of Eligibility (COE), and the builder you work with must have a valid VA builder ID. It’s important to work with a lender experienced in VA construction loans to ensure the process runs smoothly.
What are the VA Loan Limits for Land Purchases?
The VA loan limits for land purchases are the same as those for purchasing a home. The current VA loan limit for 2024 is $766,550 for most counties, but in high-cost areas, the limit can go up to $1,149,825. These limits apply to both the land and construction costs combined.
VA Loan Limits by Area (2024)
Area | VA Loan Limit |
---|---|
Standard County | $766,550 |
High-Cost County | $1,149,825 |
What are the Benefits of Using a VA Loan to Buy Land?
Using a VA loan to buy land and build a home comes with several significant benefits:
- No Down Payment: Veterans can often purchase land and build a home without needing a down payment, as long as the total loan amount stays within the VA loan limit.
- Lower Interest Rates: VA loans typically offer lower interest rates compared to conventional or FHA loans. This can save veterans thousands of dollars over the life of the loan.
- No PMI: VA loans do not require private mortgage insurance, even when no down payment is made, which can lead to significant monthly savings.
- Flexible Credit Requirements: VA loans are more lenient when it comes to credit score requirements, making it easier for veterans with lower scores to qualify.
Michael Thompson, a Senior Loan Specialist at Liberty Home Loans, explains, “VA loans are one of the most flexible financing options available for veterans. However, when it comes to land, you must ensure that you have a construction plan ready to meet VA guidelines.”
Challenges of Using a VA Loan to Buy Land
While there are many benefits, there are also some challenges to using a VA loan for land:
- Strict Construction Timeline: The VA requires veterans to begin construction on their home soon after purchasing the land. If there are delays or if you’re not ready to start building, a VA loan may not be the best option.
- Limited Financing for Standalone Land: If you’re looking to buy land and hold it for future use, a VA loan won’t work. VA loans are intended for veterans who plan to build a primary residence immediately.
Lisa Ramirez, VP of Mortgage Lending at Valor Financial, says, “Veterans should be prepared for a more complex process when using a VA loan for land purchases. It’s important to have your construction plans and financing lined up ahead of time.”
VA Loan Limits and Construction Costs
When using a VA loan to buy land and build a home, it’s essential to keep in mind the total loan limits, which include both land and construction costs. Construction costs can vary significantly based on the size of the home, materials, and location.
Estimated Construction Costs by Home Size
Home Size (sq. ft.) | Estimated Cost |
---|---|
1,500 – 2,000 | $180,000 – $250,000 |
2,000 – 2,500 | $250,000 – $325,000 |
2,500 – 3,000 | $325,000 – $400,000 |
Before committing to a land purchase, veterans should obtain detailed estimates from contractors to ensure their loan will cover both the land and construction costs.
Frequently Asked Questions
Can I use a VA loan to buy land and build later?
No, VA loans require that you begin construction on the land soon after purchase. If you want to hold land for future use, you’ll need to explore other financing options.
What is a construction-to-permanent loan?
A construction-to-permanent loan allows you to finance both the land and the construction of a home in one package. Once the home is completed, the loan converts to a traditional mortgage.
What is the VA loan limit for land purchases?
The VA loan limits for land are the same as those for home purchases. In 2024, the limit is $766,550 for most counties and $1,149,825 in high-cost areas.
Do VA loans cover construction costs?
Yes, VA loans can cover construction costs if they are part of a construction-to-permanent loan. Veterans should work with a lender experienced in VA construction loans.
How long does it take to close on a VA loan for land and construction?
Closing on a VA loan for land and construction can take 45-60 days or longer, depending on the complexity of the project and the lender’s requirements.
What are the VA property requirements for land purchases?
The land must meet VA property standards, which include ensuring the land is suitable for building a primary residence and meets safety standards.
Can I buy land with a VA loan without immediate plans to build?
No, the VA requires immediate plans to build a home on the land. If you’re not ready to build, a VA loan isn’t a suitable option.
Are VA loans a good option for land and home construction?
Yes, VA loans are a great option if you’re ready to build a primary residence on the land. They offer benefits like no down payment and no PMI, making them a cost-effective solution.