VA Loan Questions: Farm Loans
One question that comes up occasionally in our comments section has to do with VA loans for farm residences. Does the VA offer a home loan guaranty for farms?
Yes and no. The VA does not guaranty farm loans to purchase farm businesses. However, according to VA Pamphlet 26-7, “Although VA does not make farm or other business loans, the law allows veterans to use their Loan Guaranty benefit to purchase a farm on which there is a farm residence. ”
How does the VA handle such purchases when it comes to appraisals and establishing the fair market value of the property in order to come up with a VA loan amount?
According to Chapter 11 of the VA Lender’s Handbook, “The appraisal of properties with acreage should not present difficulties if a sufficient number of similar properties in the area were recently sold primarily for residential use. For VA purposes, the valuation must not include livestock, crops or farm equipment and supplies.” (Emphasis ours.)
There are other issues. According to Chapter 11, “Installed facilities (such as, well, septic tank, etc.) serving the dwelling will be considered part of the dwelling when, in the opinion of the appraiser, such items contribute to the desirability and residential aspects of the property.” Note the phrase, “in the opinion of the appraiser”. This means that not every appraisal will permit or recognize certain installed facilities depending on the circumstance and nature of those facilities.
In addition, “Buildings other than the dwelling will be valued on the basis of the use of the property for residential purposes only.”
As you can see, a farm dwelling loan is a bit more complicated than a VA mortgage for a condo or typical suburban home. That does not mean the borrower shouldn’t pursue such a dwelling if that is what is desired; it does mean preparing for a longer process when it comes to loan approval and the appraisal.
For more information on what is permitted with a VA loan with regard to farm homes, contact the VA directly or speak to a loan officer about your options.
Do you have questions about VA home loans or refinance loans? Ask us in the comments section.