When looking to purchase a home, a pre constructed home is not your only option when it comes to utilizing your VA loan benefit.
If you’re having trouble finding the right home for you or are looking for something unique, there are options to build a custom home using a VA construction loan. However, there are often questions about the land the home will reside on and whether or not the VA will finance it.
Technically, yes. While the VA allows the purchase of land with a VA loan, most lenders will not allow the sole purchase of land.
Some lenders may allow you to purchase land with the intention to build a home with a VA loan, but VA construction loans are typically a risky investment for lenders.
One of the main things to keep in mind is ensuring your land is not unimproved. Unimproved land is property that has no services or utilities accessible. If the land does not have access to water, electricity or street access, it would be defined as unimproved. Unimproved or “raw” land is not eligible to be purchased with a VA loan even if you have the intention to improve it in the future.
If you want to purchase a home along with land using your VA home loan benefit, you have a few options for doing so:
Again, VA lenders may be hesitant about construction loans. Most lenders view new construction as a risk and the VA does not require lenders to offer construction loans, so it is up to the lender’s discretion.
Just because many lenders are hesitant to finance new construction doesn’t mean that VA financing for land purchases is entirely off the table. One way to get around this obstacle with lenders is to finance the land purchase and construction of the home using an alternative mortgage option and then utilizing the VA cash-out refinance once you complete construction.
The VA guarantees many types of properties that can be purchased with the VA home loan as long as it is your primary residence. Both the home and farm will be appraised for residential use only, not commercial use. Alternative financing must be used if you intend to use the farm for commercial business.
There is no limit to the number of acres you can buy with a VA guaranteed loan but the size of the property can lead to issues on the VA appraisal. VA loans used to finance large acreage make it difficult for the appraiser to find recent comparable home sales, which is an important piece in determining the property's value.
Using your VA loan benefit to purchase land undoubtedly brings up questions, so let’s break down a few of them.
No, VA loans do not require a down payment if you are purchasing land for a home to be built on or if you are purchasing land and a newly built home at once.
You can technically purchase land and construct a tiny home as long as the tiny home meets the VA's minimum property requirements. This can be another area where it may be difficult for an appraiser to compare this property to a similar one when calculating the value of the home.
The VLB is a state program established in 1946 that is only for veterans residing in the state of Texas. The Texas Veterans Land Board does offer “land loans,” but these are not the same as the VA home loan. The board controls the set interest rates for their own loans so you must work directly with them for this specialized financing. Interest rates for VA loans are set by the approved lender offering the financing.
While it’s not as common to use your VA loan to buy land and a home together, it is possible to do so. If you have additional questions or would like to discuss your options, it’s best to get in touch with a VA loan lender.