Many veterans ask the question, “Can I use a VA loan to buy land?” The answer to this question is no, you cannot use a VA home loan to purchase vacant land. VA home loans can only be used to purchase an “existing dwelling,” and the VA handbook forbids borrowers from using VA home loans to purchase “unimproved land with the intent to improve it at some future date.” This means that if you’re buying the land but not immediately planning to build a home on it, you can’t do so with a VA loan. A permanent residence must be imminent!
VA Construction Loans
According to the VA handbook, your VA entitlement does cover construction loans. These loans can be used to build condos as well as suburban-type homes. So, using a VA construction loan, you can buy land so long as you have construction commitments in place for the immediate future.
Keep in mind that the process of taking out a VA construction loan can be complicated. The VA must approve your choice of construction company, the construction site, and the building plans. Additionally, homes built in this manner must come with a one-year warranty at the very least. There are several inspection processes and red tape involved with taking out a VA construction loan, so borrowers may struggle to find willing lenders. If this is the case, it’s recommended that borrowers seek out conventional or FHA construction loans, and then refinance the house with a VA loan once it’s been built.
Another alternative to a VA construction loan is to build a home on a VA pre-approval basis. You’ll have to find a willing contractor, but if everything goes well during the appraisal, you can wait until the home is complete and then use a VA home loan to buy it.
Since VA lenders seldom approve VA construction loans, you’ll likely have to make a down payment with the financial institution with whom you end up working. Use your best judgment and shop around for the lowest down payment and the best closing costs. Also, there are some contractors and builders who might offer special deals to veteran and military families. Get to know the company and make sure you’re getting the best deal.
Refinancing Construction Loans
While not many VA lenders do construction loans, a considerable number of them will be able to help you refinance them. This comes with all the usual VA requirements, such as appraisals, income reports, your debt-to-income ratio, and home warranties from builders. Furthermore, to refinance a construction loan, the home must have been constructed by a VA-approved builder, so consult your VA lender early in the process to make sure refinancing will be an option down the road.
For further questions about VA loans, give us a call 855-223-0705.