VA Land Loan Rules

While the VA does not allow veterans and military families to use a VA home loan to purchase land only, options exist for borrowers to buy land and build a home on it.

Let’s talk about how the VA loan works, VA land loan eligibility requirements and the VA’s options for purchasing land:

• VA Land Loan Option 1: Simultaneous Purchase and Construction
• VA Land Loan Option 2: Alternative Land Financing
• VA Land Loan Option 3: Alternative Land and Construction Financing

VA Loan Overview

The VA loan offers competitive home buying benefits to veterans and military service members. Administered by the Department of Veterans Affairs (VA) and issued by VA-approved lenders, the VA loan program provides:

• No down payment requirement
• No private mortgage insurance (PMI) require
• Low interest rates
• Streamlined refinancing option via the Interest Rate Reduction Refinance Loan (IRRRL)

However, the VA loan program promotes homeownership, not real estate investing. As a result, the VA mandates an occupancy period. After someone purchases a home with the VA loan, they must live there for at least a year. (Some rare exceptions exist to this rule).

For this reason, the VA does not allow borrowers to purchase land without property on it, or without a plan to build property immediately. Purchasing land alone represents investing – not occupancy.

Despite this rule, options for purchasing land with a VA loan exist. But, buyers must meet specific requirements.

VA Land Loan Eligibility Requirements

To use a VA land loan, borrowers must qualify for a VA loan. To qualify, veterans and service members must meet all of the following requirements:

• Possess a Certificate of Eligibility (COE) demonstrating your eligibility to use a VA-backed loan.
• Meet the VA’s and lender’s standards for income, credit score, debt-to-income ratio and any other financial requirements
• Intend to occupy the home you’re building or refinancing from a VA construction loan or conventional construction loan

With that in mind, let’s discuss three options for using a VA loan to purchase land.

The first option involves direct VA financing, while the second and third use indirect VA financing.

VA Land Loan Option 1: Simultaneous Purchase and Construction

According to VA guidelines, eligible borrowers can use a VA loan to purchase land and property together – not land alone. That means you can’t buy a plot of land, hope for it to appreciate and resell it in the future.

However, you can use the VA loan to purchase land directly, so long as you have plans to build a property there immediately.

You can apply for a combined purchase and construction loan through a VA-approved lender.

You’ll need to submit formal construction plans and, upon completion, have the finished property inspected.

Furthermore, your building plans must meet certain criteria:

• You must work with a VA-approved builder with valid VA identification.
• You can not build a home with more than four units. Each unit must have its own utility connections, and you must occupy one of the units as your primary residence.
• Your property must be built on and affixed to a permanent foundation.
• Your property must conform to the VA’s MPRs, or minimum property requirements. It must also meet federal and local building requirements.
• Your land can not be located in a flood or noise zone, near a landfill or in an area vulnerable to major natural disasters like landslides or earthquakes.

VA Land Loan Option 2: Alternative Land Financing

The second VA land loan option represents an indirect financing method. Through this approach, you can purchase land with an alternative means of financing, such as a short-term loan or a conventional loan.

You can use a VA construction loan (as opposed to a purchase and construction loan) to build their primary residence on that land.

Once you’ve built your property, you can refinance your land loan and your VA construction loan into a permanent VA loan. This permanent loan would pay off the outstanding balance on your original land purchase and construction loans. The VA would conduct its final appraisal based on the finished property and land together.

Note: You must use a VA-approved home builder.

This option requires some financial creativity to find a short-term financing option, but it can help eligible borrowers indirectly purchase land with a VA loan.

VA Land Loan Option 3: Alternative Land and Construction Financing

VA construction loans can require a fair amount of administrative red tape. Some borrowers choose to avoid them altogether.

However, you can still indirectly finance your purchase through the VA by first applying for a non-VA purchase and construction loan.

You can use a non-VA loan to purchase a plot of land and build a home. As long as the finished property meets the VA’s MPR and is your primary residence, you can refinance your original loan into a permanent VA loan.

Using a short-term, conventional construction loan to purchase land and build a home can streamline your way to a VA loan by allowing you to bypass the VA construction and land loan process. Once you’ve finished building your home, you can refinance into a VA loan.

However, you need to understand how short-term construction financing works, which may require additional research.

Non-VA Land Loan Option

Piggy-backing a little bit off of the scenario listed above, there is a way to get a non-VA loan and later combine it to a VA loan.

Suppose there’s a situation where you get a non-VA land loan to buy a plot of land and sit on it for a few years. VA loans require you to immediately start building, but let’s say  you aren’t ready to build, then you’re only beholden to the parameters of the land loan. A few years pass and you decide to build using a VA construction loan. Once the house is built, you could then reach out and refinance, and combine the two loans under the refinanced VA loan.

If an option like this sounds intriguing, we’d encourage you to speak to loan specialist about the details.  

Final Thoughts

Buying land with a VA loan is neither common nor straightforward, but it is doable. Direct and indirect financing options exist for veterans and service members who prefer building over buying a completed property.

Maurice “Chipp” Naylon spent nine years as an infantry officer in the Marine Corps. He is currently a licensed CPA specializing in real estate development and accounting.