VA Farm Loans

What is a VA Farm Loan? The name implies that there’s a VA mortgage available for farm purchases, which is true, though it comes with restrictions. The simple answer is that, according to the Department of Veterans Affairs, a VA Farm Loan is a mortgage intended for the “purchase, construction, repair, alteration, or improvement of a farm residence” by a qualified borrower or borrowers.

A VA Farm Residence Loan should not be confused with USDA Farm loans. There are USDA home loans for residences in qualifying rural areas, as well as USDA Farm Ownership Loans (among many other USDA loan products). USDA Farm Ownership loans have no prior farm ownership experience requirements and are specifically for farm businesses, rather than home loans for a primary residence.

Compare that to the VA Farm Residence Loan, which addresses only the property’s residential value — the VA loan option here is not intended to help finance a business.

That’s just one aspect of the VA loan option you should be aware of–what about the other limitations? We’ll explore those below, but it is important to note that VA Farm Residence loans are, in most respects, identical to other VA mortgage loans: there is no VA-defined credit score requirement, as FICO score rules are set by the lender.

There is also no VA down payment requirement in most cases, and no VA-mandated mortgage insurance premium.

In other words, those who choose a VA Farm Residence Loan instead of using their VA benefits to purchase a typical suburban home are not losing out on the zero-down payment option and have the same general financial qualifications required for loan approval. There are some differences in the Farm Residence loan approval requirements, which we’ll discover below.

VA Farm Residence Loan Basics

All VA mortgages, known as purchase loans or “forward loans,” are subject to certain restrictions. They are intended for owner-occupiers and cannot be used to purchase, repair, or refinance non-real estate items such as houseboats or RVs. If it cannot be affixed to a permanent foundation, it’s not eligible for a VA mortgage.

VA mortgages–including farm residence loans–cannot be issued for more than the appraised residential value of the property, including any approved add-ons to the loan, such as a VA Energy Efficient Mortgage, discount points to be financed where applicable, etc. You can’t apply for a home loan expecting cash back at closing — that will not happen.

VA Farm Residence Loans must follow the same basic rules as other VA mortgages, which means you won’t be able to borrow money under the VA program to purchase or transfer livestock, farm equipment, and excess land that is not residential in nature.

The VA Lender’s Handbook, VA Pamphlet 26-7, states clearly that any land “in excess of the home site” is not eligible for the VA mortgage. Silos and barns are also not eligible under the most current published version of VA loan rules.

Confusion Over VA Farm Residence Loan Valuation Procedures

Some military-oriented websites have reported that the VA will consider barns and silos at fair market value as part of the valuation process. This may arise from a VA document revised in 2018, which states in part, “For VA purposes, the value must not include livestock, crops, or farm equipment and supplies. Individual improvements not typically considered residential will be valued at fair market value. This includes barns, sheds, corrals, stables, pastures, etc.”

However, in 2019, the VA Lender’s Handbook, VA Pamphlet 26-7 was revised, and the most recent revision includes the following line as quoted directly from the section referencing VA Farm Residence Loans:

“The loan cannot cover the:

• Nonresidential value of farm land in excess of the home site
• Barn, silo, or other outbuildings necessary to the operation of the farm, or
• Farm equipment or livestock”

VA Farm Loan Acreage Limits

The Department of Veterans Affairs does not impose an acreage restriction on VA Farm Residence Loans. Communications from the Department of Veterans Affairs include a reminder to lenders, “The appraisal of properties with acreage should not pose a problem, as long as similar properties in the area were recently sold primarily for residential use.”

The key in this area is to know what is considered customary for the market where the sale is taking place. You may find some housing markets where farm residence loans are common, and in such cases, the appropriate procedures and guidelines should be well understood by your lender.

In other housing markets where this type of home loan is not as common, some additional research may be required to get the loan you need.

Using Farm Income To Qualify For The Mortgage

VA loans may allow projected farm income to be used as qualifying income, but additional documentation is required.

According to VA Pamphlet 26-7, if farm income is needed to support the loan, the veteran’s ability and experience as a farm operator must be established. Borrowers may need to submit a proposed operating plan, income projections, and a statement confirming ownership (or planned purchase) of necessary farm equipment. If the equipment will be financed, repayment terms must be disclosed.

Applicants may also need proof of an operating line of credit or other resources to cover farm expenses. In some cases, a local farm appraiser may be required.

Veterans continuing an existing farm operation must typically provide records from the past three years showing operating credit advances, payments, and balances to demonstrate business stability.

Lender Standards, State Law, And Other Rules May Apply

Home loan approval for VA Farm Residence Loans is contingent on several factors, but most of these are similar to the requirements for any other type of VA mortgage. Borrowers must credit qualify, the lender and borrower negotiate the interest rate and other terms of the loan, and the borrower must intend for at least one person obligated on the mortgage (or a qualifying dependent) to reside in the farm home as their primary residence.

State laws, lender requirements, and other rules for these types of mortgages may apply in addition to VA standards.