VA Loan Reader Questions: Construction Loan Rules
A reader asks, “Will the VA loan cover the land and construction, or will I need two separate loans?”
VA loan rules explain what can be done with a VA mortgage loan. There are approved uses for a VA loan and uses for VA loan funds that are not permitted. According to the VA Lender’s Handbook, VA loans can be used for the following purposes (though not limited to the following):
“To purchase or construct a residence, including a condominium or cooperative unit, to be owned and occupied by the veteran as a home.”
Also, VA rules say that the VA home loan, “may include simultaneous purchase of the land on which the residence is situated or will be situated” and that “loans may also be guaranteed for the construction of a residence on land already owned by the veteran (a portion of the loan may be used to refinance a purchase money mortgage or sales contract for the purchase of the land, subject to reasonable value requirements)”.
In a different section of the VA loan rulebook, the rules add a few important distinctions. For example, “VA cannot guarantee loans made for ineligible loan purposes.” VA Pamphlet 26-7 describes many of these ineligible loan purposes which include “Purchase of unimproved land with the intent to improve it at some future date (that is, the land purchase is not in conjunction with a construction loan).”
If the VA loan applicant wants to buy land and get a construction loan, the borrower may need to discuss getting a bridge loan for the land and/or the new home construction which usually comes in stages. The process of buying land and building a home with a VA mortgage is more complex than an outright new purchase of existing construction properties. Contact the VA directly for further information and discuss your needs with a loan officer to see what your best options might be for these types of VA loans.
Do you have questions about VA mortgages? Ask us in the comments section