Can You Use Your VA Loan to Buy Land?

VA loans represent a significant benefit for eligible veterans, active-duty service members, and certain surviving spouses. These loans offer favorable terms, often including no down payment requirements and competitive interest rates. A common inquiry among those looking to leverage this benefit is whether a VA loan can be used to purchase land. While a VA loan generally does not finance the acquisition of raw land alone, land can be included as part of a broader home financing solution.

Qualifying Land for a VA Loan

A VA loan is intended for the purchase or construction of a primary residence, meaning the land must be directly associated with a dwelling. Purchasing vacant land or raw acreage without immediate plans for home construction is not permitted under VA loan guidelines.

The VA’s occupancy requirement dictates that the property must be intended for the veteran’s primary residence. Therefore, if land is acquired with a VA loan, it must either already have an existing home on it, or there must be a plan to construct a new home on that land. For instance, purchasing an existing home that includes a parcel of land is a common and eligible use of a VA loan. Similarly, financing the construction of a new home where the land cost is integrated into the total construction loan is also permissible.

Specific scenarios, such as the purchase of a manufactured home, can also involve land acquisition with a VA loan. The manufactured home and the land it will be placed on must be part of a single transaction and meet particular criteria, including being permanently affixed to a foundation and classified as real property. The value of the land must be included in the overall appraised value of the property for loan purposes.

VA Loan Programs for Land and Construction

When a VA loan includes a land component, it is tied to new home construction. VA construction loans cover land purchase and new home construction costs. These loans disburse funds to the builder in stages as construction progresses.

Two primary types of VA construction loans exist: the One-Time Close (OTC) and the Two-Time Close (TTC). A One-Time Close construction loan combines financing for the land purchase, construction, and permanent mortgage into a single loan. This means there is only one loan closing before construction begins, simplifying the process and potentially reducing overall closing costs. The loan automatically converts to a permanent VA mortgage once construction is complete, and borrowers typically make interest-only payments during the construction phase.

Conversely, a Two-Time Close process involves two separate loans and two closings. The first loan covers the land acquisition and construction phase, which might be a short-term construction loan from a private lender. Once home construction is complete, a second VA loan is obtained to pay off the initial construction loan, establishing the permanent mortgage. While the OTC option offers streamlined convenience, not all VA-approved lenders offer construction loans, particularly the One-Time Close option, due to the inherent complexities and risks involved. Borrowers may need to seek out lenders specializing in VA construction financing to explore these options.

Applying for a VA Loan with a Land Component

The application process for a VA loan involving a land component, especially for new construction, requires several distinct steps. The first step is obtaining a Certificate of Eligibility (COE), which confirms a veteran’s eligibility for VA home loan benefits. This certificate can often be acquired quickly through a VA-approved lender, online via the VA’s eBenefits portal, or by mail using VA Form 26-1880.

Once the COE is secured, finding a VA-approved lender experienced in handling VA construction loans is important. Not all lenders offer these specialized loans, and working with one familiar with the nuances of land acquisition and construction financing can significantly streamline the process. Following this, borrowers typically undergo a pre-qualification or pre-approval process, where the lender assesses financial information such as income, credit history, and debt-to-income ratio to determine loan suitability and potential loan amount.

For new construction, selecting the land and vetting a builder are important steps. The chosen builder must be licensed and insured, and while a VA Builder ID is no longer strictly required, many lenders prefer builders experienced with VA loan requirements.

Detailed construction plans and specifications, along with a signed construction contract, are necessary documentation for the loan application. A VA appraisal will be conducted, which is unique in that it considers the value of the property upon completion of construction, rather than its current state. The loan then moves through underwriting, where the lender reviews all documentation and financial qualifications. Upon approval, the loan closes, and funds are typically disbursed in stages as construction milestones are met and verified by inspections.