In our last blog post we covered things you can do with a VA home loan aside from purchasing a traditional suburban home. For example, you can buy a mobile home and lot, you can purchase land and have a home custom built simultaneously, a VA loan applicant can even apply for a VA loan to purchase a farm home and farmland. In those cases the land is appraised at the residential value rather than the value it might be assigned from any commercial use of the property.

A buyer has many options when it comes to using the VA home loan but there are also a list of restrictions. The VA does not allow loans for undeveloped land with “the intent to improve it at some future date (that is, the land purchase is not in conjunction with a construction loan).” A plot of land must be used to build a home upon or it’s not eligible for a VA mortgage loan.

The same rules apply to buying property as an investment–the VA loan program is intended to help borrowers purchase a home they will live in as their primary residence. Borrowers are allowed to purchase multi-unit properties, but the VA restricts purchases of “more than one separate residential unit or lot unless the veteran will occupy one unit and there is evidence that the residential units are unavailable separately, the residential units have a common owner, the residential units have been treated as one unit in the past, and the residential units are assessed as one unit…”

The VA does allow home loans for combined residential and business properties, but only one business unit is allowed and it must not take up more than 25% of the entire floor space of the property.

Another important rule covers cash back to the borrower. For new loans, the VA does not allow cash proceeds from the loan to be paid to the borrower for any reason. Some VA refinancing loans to provide cash back to the borrower, but new home loans do not. The VA makes a distinction between refunds, which is the return of money the borrower put into the loan, and “cash proceeds” from the loan which is money the borrower would theoretically receive as a result of the loan.

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