Veteran Affairs (VA) loans can be a godsend of benefits that can help you find that perfect home on that perfect lot. But while you may think you have to buy a house already built, you actually have more options available to you. According to the VA Handbook, you can buy land with a VA mortgage, but you must put a house on it—which can be a complex process depending on the type of home.
When you buy land with a VA loan, there are many conditions that must be met before you can make any official move.
Some of the requirements for building any type of house are the same. These conditions include:
- Land can’t sit idle for an undetermined amount of years. This means a construction loan and land purchase loan must be applied for at the same time
- The purchase of land and house must be for a primary residence
- Undeveloped land can’t be purchased
- Your home can’t sit on unstable land which includes, but isn’t limited to, fault lines, flood hazards, and sinkholes
- Land can’t be near certain utility easements such as high voltage electrical lines or high-pressured gas
- Construction must comply with federal and local building requirements
- House must be classified and taxed by the local jurisdiction as actual property
- If a mobile home, it must have a permanent foundation
- Must conform with VA minimum property requirements (MRP)
When you buy land with a VA loan, keep in mind that these conditions must be met before any lender will consider financing the property and construction of the home.
Now, as far as houses go, you do have the option to build the following: stick-built, manufactured, modular, or prefabricated. Stick-built homes will pave an easier pathway to getting approved as they have less paperwork than the others. But if you are thinking of getting any other type of home, be aware that you may have to jump through quite a few hoops (some that may be time consuming and expensive) until you get final approval.
Here is a list of some things to take into consideration when building:
Find a lender who will work with you. Lenders will work with you if you want to build a stick-built, but many lenders may be gun-shy of mobile homes because of all the red tape and potential finance issues. It can be difficult to find one that will approve both the land and type of house you intend to build. However, there are lenders out there who will try and work with you. Tip: having a high credit score will help sway the lenders to your side.
Next, you’ll want to apply for certain loans at the right times. The VA Handbook states that you must apply for a construction loan and land purchase loan simultaneously. So before you buy land with a VA mortgage, be aware that you’ll have to set up the construction plan beforehand. The loan must be closed before you start construction.
Gather all the paperwork. After you get the plans for your house, you’ll need to gather all the paperwork regarding it. Much of the paperwork you’ll need is in regards to building construction. You’ll need to make sure your house complies with the area’s rules. Some of the paperwork you may need includes specifications for the foundation and a plot plan, a floor plan of the house, and, a drawing of the foundation anchorage details. Your contractor and lender can assist you in obtaining all the necessary paperwork.
Note: Your builder is required to provide a warrantee on the house you’ll build, which will usually be paid at closing. Your builder will also need to provide a detailed plan of the proposed building. A qualified professional should draw up this plan and it should be given to an appraiser. Remember—you need to get a VA appraisal if you want a VA loan.
Get pre-approval. Next, you’ll want to get pre-approved by someone like a VA-approved inspector. They should look over the paperwork. If you get pre-approved, make sure that you comply with what your paperwork says regarding your house. This means you can’t make any changes as it could get in the way of the process.
Follow up on construction payments. According to the VA handbook, after your construction loan is approved and has been closed, your lender has to get your written approval before they take out payments to give to the builder. The payments will be given in phases as the house is being built.
As you buy land with a VA mortgage, building a house goes hand-in-hand with the purchase. The land loan will not be approved if you do not have plans to build a home on the property
Keep in mind that when you buy land with a VA loan, you should consider that there are many complex hurdles you have to jump through in order to get the green light. Make sure to ask your lender when you will need to have things approved or finished by, as not knowing can get you back-logged by weeks or even months.
Things to Keep in Mind:
- For a manufactured home, a VA loan will have a maximum term of only 25 years. This will increase your monthly payments.
- Prefabricated houses depreciate over time, which may make a lender hesitant to fund them. Modular and manufactured homes will be easier to finance.
If you or anyone you know is interested in purchasing a home, visit VA Loan Ranger to learn more about what you can qualify for.