VA Loan Rules and Regulations: The Basics of the VA Loan
We’ve gotten several reader questions recently about the nature of the VA loan program. Some people misunderstand or have been misinformed about what the VA loan program is or how it is supposed to work. Contrary to what some may think, VA loans are not for small businesses, they cannot be issued as “personal loans” or for any other non-real estate purpose. Today we will discuss the basics of the VA loan, including VA loan rules and regulations.
It’s easy to understand why some might be confused about some of these unapproved uses for VA loans–after all, a VA cash-out refinance loan does feature cash back to the borrower. If you didn’t know the VA Cash Out program was meant to refinance existing home loans, it would be easy to assume it was a personal loan or a non-real estate related line of credit.
VA loans are only for new purchases, refinances and in some cases home improvements. But there are also unapproved uses for a VA loan that are directly related to real estate. The VA lender’s handbook says, “VA cannot guarantee loans made for ineligible loan purposes. Examples of ineligible loan purposes 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).
- Purchase or construction of a dwelling for investment purposes.
- Purchase or construction of a combined residential and business property, unless,
− The property is primarily for residential purposes,
− There is not more than one business unit, and
− The nonresidential area does not exceed 25 percent of the total floor area.
- Purchase 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, or
− Partition is not practical, as when one unit serves the other(s) in some respect; for example, common approaches or driveways.”
That is a fairly exhaustive list, but may not cover all situations where a borrower might wish to apply for a VA mortgage. If you have a situation you aren’t sure qualifies, you should speak to a loan officer or contact the VA directly for assistance.
Do you have questions about VA home loans? Ask us in the comments section.