Can a VA Loan Be Used to Buy Land?

The Department of Veterans Affairs (VA) loan program provides benefits to eligible veterans, service members, and their surviving spouses, primarily to facilitate homeownership. While VA loans are generally intended for acquiring a primary residence, land can be included under specific conditions. This ensures the program supports stable housing rather than speculative investments.

The General Rule

A VA loan cannot typically be used to purchase raw land alone. The program’s core purpose is to promote homeownership by providing a primary residence. Financing land alone would be considered a speculative investment, which does not align with the program’s guidelines for immediate occupancy.

Circumstances Where Land Can Be Included

Land can be financed as part of a VA loan under specific scenarios that align with the program’s focus on homeownership. One primary method is through a VA construction loan, which simultaneously finances both the land purchase and the construction of a new home on that land. This approach treats the entire project as a single, integrated transaction, ensuring the land is acquired with the intent of building a primary residence.

Another avenue is the VA Native American Direct Loan (NADL) program. This program allows eligible Native American veterans and their spouses to buy land and build or purchase a home on federal trust land. The NADL is a direct loan from the VA and requires a Memorandum of Understanding (MOU) between the veteran’s tribal government and the VA.

A standard VA loan can also cover land if it includes an existing, habitable home that will serve as the veteran’s primary residence. In this situation, the loan is for the complete property, including the land, because it already contains a dwelling ready for occupancy. This scenario is distinct from purchasing raw land, as the primary asset being financed is the established home.

Key Requirements for Land-Inclusive VA Loans

For land to be included in a VA loan, certain criteria must be met concerning the site and the overall construction project. The land must demonstrate site suitability, needing access to essential utilities such as water, sewer, and electricity, or approved alternative systems like a septic tank and well. Adequate road access, either public or private, is also required, and the property must not be located in designated flood or noise zones.

For construction loans, the builder undertaking the project must be registered with the VA. While the VA registers builders, it does not endorse their quality of work, so veterans should conduct their own due diligence. Complete and detailed construction plans and specifications, including blueprints, are necessary to ensure the proposed home meets the VA’s Minimum Property Requirements (MPRs).

The constructed home must also adhere to the VA’s strict occupancy requirements. This means the property must serve as the veteran’s primary residence, with occupancy typically expected within 60 days of the loan closing. Some exceptions exist for active-duty service members, but the general rule emphasizes personal residency.

Securing a VA Loan for Land and Construction

The process of securing a VA loan that encompasses both land and construction begins with identifying a lender experienced in these specialized transactions, as not all VA lenders offer construction loans. Once a suitable lender is found, the application process involves obtaining a Certificate of Eligibility (COE) and meeting the lender’s financial criteria, which typically include a credit score of at least 620 to 640 and a debt-to-income (DTI) ratio generally not exceeding 41%.

Throughout the construction phase, a VA appraisal is conducted to determine the property’s value upon completion, and phased inspections ensure compliance with VA standards and approved plans. These inspections are important for verifying that the construction adheres to safety, structural, and sanitary requirements. Loan funds are disbursed to the builder in stages, known as draws, as construction milestones are achieved.

Lenders typically release funds in four to six payments, holding back a percentage, often 10%, until the final inspection confirms satisfactory completion. The closing process can either be a “one-time close,” combining the construction and permanent financing into a single loan, or a “two-time close,” involving separate loans for construction and permanent financing. Upon successful completion and final inspection, the loan transitions to a permanent mortgage, with regular payments commencing.