A reader asks, “Can I use a VA loan to buy land in order to build on?”
There are two sections of the VA loan rules which offer guidance for the eligible uses of VA loans. One is Chapter 3 of the VA Lender’s Handbook, which states the following in Section 2, Eligible Loan Purposes:
“The law authorizes VA to guarantee loans made to eligible veterans only for the following purposes…” which include “To purchase or construct a residence, including a condominium or cooperative unit, to be owned and occupied by the veteran as a home…”
Some private-company VA loan websites erroneously report, “The VA home loan cannot be used to purchase vacant land. As per the US Department of Veteran Affairs regulations, the VA loan can only be used for an existing dwelling.”
This is not true, as per Chapter 3, Section 2 of the VA Lender’s Handbook, which states, “…the loan may include simultaneous purchase of the land on which the residence is situated or will be situated”.
The other VA loan rules that apply for this issue are the rules for VA appraisals. VA Appraisal Guidelines, page 11 Section 3 states, “Dwellings where construction has not started or is under construction but not complete to the customer preference stage are considered proposed construction. A home may be appraised from plans and specifications or a model home…”
It’s important to note that the appraisal requires a dwelling to be appraised, proposed or existing. Without a VA appraisal, there can be no VA loan.
VA loan rules do not allow purchase of undeveloped land or vacant lots all by themselves–any purchase of such property must be in conjunction with a construction loan. The borrower cannot buy land with a VA loan with non-specific plans to develop the land “sometime in the future”.
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