Buying a home means making a lot of choices. Sometimes, you need to buy land rather than just buying a ‘cookie cutter’ home that a builder made. If you want to go through the entire process yourself, you must take the necessary steps. Without a lot, you can’t build a home. But without money, you can’t buy the lot. So where does the VA stand in all of this? Can you get VA financing to buy a lot?
Technically, yes, you can use VA financing to buy your home’s lot. But, there are strict rules you must follow. Read our guide to find out how you can make this transaction work for you.
Buying Land for Eligible Purposes Only
The VA allows the purchase of land with a VA loan only if you buy the lot at the same time as you secure financing for the home’s construction. If you buy an unimproved lot with no immediate plans to improve it and build a home, you won’t be eligible for VA financing.
In short, you’ll need the approval for a VA construction loan alongside the purchase of the lot. This may mean shopping around for a lender that is willing to do a construction loan. Many VA lenders opt out of this program because of its risk. They don’t want to provide 100% financing on such a risky loan.
The VA Construction Loan
If you can’t find a lender willing to fund a VA construction loan, you have one other option. You can use the builder’s financing and then refinance it with your VA financing when the home is complete. However, this leaves out the ability to buy the land. This is most useful when the borrower already owns the unimproved lot and wants to build a home now.
If you end up using the builder or a local lending institution, you may have to put money down on it. Make sure you inquire about any deals they have for veterans. Sometimes banks will cut veterans a deal because they know they’ll get their VA financing. This doesn’t mean you won’t need any money down, though, so prepare yourself financially for it.
Paying Off the Construction Loan
If you do use another lender for the construction loan, you’ll need to pay it off. It’s a temporary loan that becomes due when the house is complete. When you are ready for the VA financing, you can contact your VA lender. They will then walk you through the application and underwriting process just like any other purchase. Unlike most other situations, this would be considered a purchase, rather than a refinance.
You’ll have to prove your VA eligibility, income, assets, and credit score. The lender will need to make sure you have enough money to cover your bills each month along with money left over for your disposable income. The lender will also have to order an appraisal on the home to make sure it meets the VA’s guidelines.
You won’t need to put any money down on the loan. But, whatever you already put down will become immediate equity in your home. You’ll have to pay the standard VA closing costs and the funding fee of 2.15% if this is your first time using VA financing.
The bottom line is it depends on the lender if you can use the VA loan to buy land. If you can’t, there are alternatives. You’ll just have to get creative with your financing options. Talk to a few lenders to see if anyone offers a VA construction loan. If not, explore your options and find the most affordable alternative, using the VA loan as your permanent source of financing.