If you’re a service member or a veteran who wants to build your own home, a VA-backed loan could be the best way to go.
With a VA Purchase Loan, which is a benefit of your service, you can get financing to purchase land and to build your own home, all wrapped into one mortgage. In other words, you won’t have to apply for two separate loans.
Plus, there’s no down payment required, and VA Loans are often more affordable than other mortgages. The downside is that you’ll have to meet a long list of eligibility requirements that conventional lenders don’t have, including a complex application process.
Rules and Restrictions on Buying Land With a VA Loan
If you want to use a VA loan for land and construction, you can choose from a VA Purchase Loan or the Native American Direct Loan (NADL).
Each loan is available for specific groups. If you have at least 90 continuous days of service or you’re a military veteran, you might qualify for a VA Purchase Loan. If you’re a Native American Veteran or spouse of a veteran, you might qualify for NADL. There are other requirements that the VA imposes on land loans. It will loan you money for:
- Construction of a new home on land you already own.
- Land that already has a residence on it.
- The purchase of land that you’re constructing a home on simultaneously.
- The purchase of farmland with an existing residence where you plan on living.
Here are the other VA land loan requirements to be aware of:
One of the most challenging aspects of using a VA loan for land is making sure that the property meets a long list of requirements. Here’s an snapshot of just a few of the features your property must include:
- Street access for cars or pedestrians
- Proper drainage
- Flood insurance (if located in a FEMA Special Flood Hazard Area)
- Potable water supply
- Safe sewage system
The property should also meet local building and zoning codes and local health authority standards.
Both the VA Purchase Loan and the NADL can be used to cover any of the following property expenses:
- Cost to build a home on property that you already own or want to buy
- Purchase of a single-family home up to 4 units or a condo in a VA-approved project
- Purchase of a manufactured home or lot
- Cost of home improvements
- Energy efficiency upgrades
Income and Credit Score
The VA doesn’t have a minimum credit score you must meet to qualify for a loan, but your lender will need to approve you based on their own credit score requirements. That means you may want to work on improving your credit scores before applying.
In addition to that, the lender will determine what you can afford based on your income and assets.
Builder Must Be Registered With The VA
When you use a VA loan to build a residence, you can choose your own builder, but you’ll have to work with individuals who are registered with the VA.
Beyond the VA’s requirements, your lender may also have requirements for the builder, including certain licensing or insurance requirements.
Are There Acreage Limits With a VA Loan?
There are no VA loan acreage limits. In other words, the VA does not set a maximum size for the property you can buy. You may be limited, however, by what the lender is willing to approve you for based on affordability.
Should You Use a VA Loan to Buy Land?
Using a VA loan for land and construction can be a cost-effective approach to building your one home, but it has its drawbacks. You may have a difficult time qualifying, and there are limitations on the type of dwelling you can build.
As with any loan, it’s a good idea to shop around. When you compare other land and building loans—also known as one-time close, single close, or construction/permanent home loans —to a VA loan, keep in mind the terms that the VA offers:
- No down payment or PMI required
- No loan limit if you have full entitlement
- Loans close before construction
- Your builder or contractor must be registered with the VA
- Mortgage payments are not due until construction is complete
- No prepayment penalty
- One-time VA funding fee of roughly 1.4% to 2.3%, depending on your down payment.
- Possible 1% loan origination fee
- The lender is responsible for all aspects of project management
- Appraisal is mandatory
Although the VA sets several of the terms, VA-backed lenders will still determine the maximum amount you can afford, plus your interest rate and closing costs.
Other Ways To Buy Land With Your VA Benefits
VA loans can be used for multiple purposes beyond buying a home. If you’re looking to do more than just purchase your next residence, these are some of your other options:
VA Farm Loan
VA loans can be a great tool for acquiring a farm residence. You can use your VA home loan benefit to purchase, build or repair a farm residence on land you own or land you plan to buy.
Requirements to use a VA loan for farm land include:
- There must be a farm residence on the land
- The farm residence must be the veteran’s primary home
- The funds cannot be used to buy a business
VA Construction Loan
The VA home loans discussed above can be used to buy and build your next home. However, some lenders who offer VA loans do not offer financing for construction. That’s one of many reasons the VA suggests taking the time to shop around for a VA-backed lender that specializes in construction lending before you start making applications.
About The Author
Sarah Brady is a Personal Finance Writer and educator who's been helping people improve their financial wellness since 2013. Sarah writes for Experian, Investopedia and more, and she's been syndicated by Yahoo! News and MSN. She is a workshop facilitator and former consultant for the City of San Francisco's Affordable Home Buyer Programs, as well as a former Certified Housing & Credit Counselor (HUD, NFCC). Sarah can be contacted via sarahcbrady.com.
- N.A. (ND) VA home loan limits. Retrieved from https://www.va.gov/housing-assistance/home-loans/loan-limits/
- N.A. (2018, August) Farm Loans: VA Home Loans. Retrieved from https://www.benefits.va.gov/BENEFITS/factsheets/homeloans/FarmLoans.pdf
- N.A. (2019, February 1) Lender’s Handbook VA Pamphlet 26-7, Revised. Retrieved from https://www.benefits.va.gov/WARMS/docs/admin26/m26-07/Lender_Handbook_VA_Pamphlet_Complete.pdf
- N.A. (2022, April) VA Home Loan Guaranty Buyer’s Guide. Retrieved from https://www.benefits.va.gov/HOMELOANS/documents/docs/VA_Buyers_Guide.pdf