One question about VA home loans comes up every so often--can a borrower us a VA home loan to purchase a farm? What are the rules that cover this type of transaction?

VA loan rules for farm purchases are found in the VA Lender’s Handbook, also known as VA Pamphlet 26-7, which includes instructions to the loan officer about what is and is not allowed for a farm residence purchase.

Chapter Seven of the handbook includes a section about farm residence loans, which says:

“A loan for the purchase, construction, repair, alteration, or improvement of a farm residence which is occupied or will be occupied by the veteran as a home is eligible for guaranty.”

That establishes a basic approval for this type of loan but there are restrictions. A VA home loan for a farm residence may not cover:

●    the nonresidential value of farm land in excess of the homesite,
●    the barn, silo, or other outbuildings necessary to the operation of the farm,
●    farm equipment or livestock.

VA loan rules add, “A portion of the proceeds of a loan to construct a farm residence on encumbered land owned by the veteran may be used to pay off the lien or liens on the land only if the reasonable value of the land is at least equal to the amount of the lien(s).”

In essence, the VA loan will cover the residential portion of a farm only--not the business side.

VA loan rules also state that there are additional considerations for those who plan on running the farm as a primary source of income. The lender is instructed, “If some or all of the income necessary to support the loan payments comes from farming operations, the veteran’s ability and experience as a farm operator must be established.”

Borrower income in these circumstances would be reviewed as though the borrower were “self employed” and the lender may require additional paperwork including tax returns, business plans, profit and loss statements and other documents that show how the borrower has been earning as a self-employed borrower where applicable.

Speak to a loan officer about this unique type of VA home loan to learn more about the rules and requirements for a farm residence purchase using a VA home loan.