One often-asked question about the VA home loan process skips over the “home” part entirely: Can veterans use the benefit to buy land?
The short answer: No. The long answer is more complicated.
VA-backed loans are designed solely to help a veteran purchase a primary residence, so if there’s no residence, there’s no loan. But an eligible veteran can apply for what VA calls a “construction/permanent home loan” that includes money to purchase the land in addition to funding the new home’s construction.
VA outlines the process in its Lenders Handbook, but here are the highlights:
- Payments on these loans begin only after construction is finished. Per the handbook, builders have up to a year to complete the home.
- As with other VA-backed loans, the new construction must be the veteran’s permanent residence.
- Builders must pay construction-related fees, including but not limited to inspection and title update costs.
- If the construction is not completed, VA will back only a portion of the loan. Calculating that value involves multiple factors, including money already paid out to the builder and the value of the construction already completed.
Two points for borrowers to take away: First, the land and the home are a package deal if VA is expected to play any part in the loan. Veterans may have other options for land-only purchases depending on their state; Texas offers the Veterans Land Loan Program through its Veterans Land Board, for instance.
Second, just because VA will back a loan doesn’t mean a lender will offer it. Many well-known lenders don’t traffic in these types of loans for a variety of reasons, including construction-related risks. One option for borrowers would be alternate financing for the construction phase of the home, then a VA-backed refinancing once the residence is complete.
Kevin Lilley is the features editor of Military Times.