VA Loan Reader Questions: Ineligible Loan Purposes

We get a lot of reader questions asking the same type of question; “Can I do XY or Z with a VA guaranteed home loan?” In some cases, the borrower wants to know whether a certain type of property can be purchased with a VA guaranteed home loan–for example, a farmhouse or condo.

In others, the buyer wants to know if he or she can purchase a second home, a vacation property, or a residential/business “mixed use” property.

Fortunately, the Department of Veterans Affairs does have a list of eligible and ineligible uses for a VA home loan.

The VA forbids, for example, the purchase of “unimproved land with the intent to improve it at some future date”. That means you can’t get a VA loan for a land purchase that is not done in conjunction with a construction loan.

The VA also does not allow “purchase or construction of a dwelling for investment purposes.” When it comes to mixed-use property, the VA loan rules do not allow “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.”

VA loans cannot be used to buy “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” plus the following provisions:

–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.

There are also plenty of “acceptable uses” of VA home loans; we’ll cover those in another blog post.

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