VA Land Loan Rules

While the VA does not allow veterans and military families to use a VA home loan to purchase land by itself, options exist for borrowers to finance land as part of building a home.

Here’s how VA loans work, eligibility requirements, and your options for financing land:

• VA Land Loan Option 1: Simultaneous Purchase and Construction
• VA Land Loan Option 2: Alternative Land Financing
• VA Land Loan Option 3: Alternative Land and Construction Financing

VA Loan Overview

The VA loan offers competitive home buying benefits to veterans and military service members. Administered by the Department of Veterans Affairs (VA) and issued by VA-approved lenders, the VA loan program provides:

• No down payment requirement
• No private mortgage insurance (PMI) required
• Low interest rates
• Streamlined refinancing option via the Interest Rate Reduction Refinance Loan (IRRRL)

However, the VA loan program promotes homeownership, not real estate investing. As a result, the VA requires borrowers to occupy the home as their primary residence, typically within 60 days of closing.

Because of this requirement, the VA does not allow borrowers to purchase land without a plan to build a home. Buying land by itself is considered an investment, not a primary residence.

Despite this restriction, there are still viable ways to finance land when building a home using VA-backed financing.

VA Land Loan Eligibility Requirements

To use a VA land loan, borrowers must qualify for a VA loan. To qualify, veterans and service members must meet all of the following requirements:

• Possess a Certificate of Eligibility (COE) demonstrating your eligibility to use a VA-backed loan.
• Meet the VA’s and lender’s standards for income, credit score, debt-to-income ratio and any other financial requirements
• Intend to occupy the home you’re building or refinancing from a VA construction loan or conventional construction loan

With that in mind, let’s discuss three options for using a VA loan to purchase land. The first option involves direct VA financing, while the second and third use indirect VA financing.

VA Land Loan Option 1: Simultaneous Purchase and Construction

According to VA guidelines, eligible borrowers can use a VA loan to purchase land and property together – not land alone. That means you can’t buy a plot of land, hold it for future appreciation or resale.

However, you can use the VA loan to purchase land directly, so long as you have plans to build a home there immediately.

You can apply for a combined purchase and construction loan through a VA-approved lender. You’ll need to submit formal construction plans and, upon completion, have the finished property inspected.

Furthermore, your building plans must meet certain criteria:

• You must work with a VA-approved builder with valid VA identification.
• You cannot build a home with more than four units. Each unit must have its own utility connections, and you must occupy one of the units as your primary residence.
• Your property must be built on and affixed to a permanent foundation.
• Your property must conform to the VA’s minimum property requirements (MPRs). It must also meet federal and local building requirements.
• Your land cannot be located in a flood or noise zone, near a landfill or in an area vulnerable to major natural disasters like landslides or earthquakes.

VA Land Loan Option 2: Alternative Land Financing

The second VA land loan option represents an indirect financing method. Through this approach, you can purchase land with an alternative means of financing, such as a short-term loan or a conventional loan.

You can use a VA construction loan (as opposed to a purchase and construction loan) to build your primary residence on that land.

Once you’ve built your property, you can refinance your land loan and your VA construction loan into a permanent VA loan. This permanent loan would pay off the outstanding balance on your original land purchase and construction loans. The VA would conduct its final appraisal based on the finished property and land together.

Note: You must use a VA-approved home builder.

This option requires some financial creativity to find a short-term financing option, but it can help eligible borrowers indirectly purchase land with a VA loan.

VA Land Loan Option 3: Alternative Land and Construction Financing

VA construction loans can require a fair amount of administrative hurdles. Some borrowers choose to avoid them altogether.

However, you can still indirectly finance your purchase through the VA by first applying for a non-VA purchase and construction loan.

You can use a non-VA loan to purchase a plot of land and build a home. As long as the finished property meets the VA’s MPR and is your primary residence, you can refinance your original loan into a permanent VA loan.

Using a short-term, conventional construction loan to purchase land and build a home can streamline your way to a VA loan by allowing you to bypass the VA construction and land loan process. Once you’ve finished building your home, you can refinance into a VA loan.

However, you need to understand how short-term construction financing works, which may require additional research.

Extended Timeline Option

Building on the scenario above, there is a way to use a non-VA loan initially and later refinance into a VA loan.

For example, a borrower could purchase land using a non-VA loan and hold it for a period of time without building. Since no VA financing is involved yet, VA occupancy rules do not apply at this stage.

When the borrower is ready to build, they could then use a VA construction loan (or a non-VA construction loan followed by a VA refinance) to complete the home.

After construction, the borrower may refinance into a VA loan, combining the land and construction costs into a single VA-backed mortgage.

Because this strategy involves multiple steps and financing layers, it’s important to speak with a loan specialist to understand the details. 

Final Thoughts

Financing land with a VA loan isn’t straightforward, but it is possible with the right approach. While the VA does not offer land-only loans, eligible borrowers can finance land as part of building a primary residence through a combination of direct and indirect strategies.

For veterans and service members who prefer building over buying an existing home, understanding these options can open the door to using their VA loan benefit effectively.

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