VA Financing for Additional Purposes (Construction, Renovation, Manufactured homes and Farms)
In addition to the traditional purchase and refinance loans, VA financing can be used by eligible veterans for a number of additional purposes such as:
VA construction loan allows you to purchase raw land and then build your house on it, sometimes called a stick built house. The lender will be heavily involved in the specifics of the deal including approving the construction plans, the construction company, the inspection of the work done on each stage of the construction, the draws against the loan for work and materials, and the final inspection in anticipation of occupancy.
After the construction period which normally lasts 12 months, there will always be a permanent financing. Permanent financing is nothing more than a follow-on loan that pays off the initial construction loan. It is often packaged along with the construction loan for a seamless transition. Under the right circumstances, this type of loan can result in a significant financial advantage to the borrower. It can also be a problem if the construction falls behind schedule or gets disrupted due to external factors.
Home Rehab Loans
VA calls renovation loans as “Loan for Alteration and Repair”. It involves the purchase or refinance of a home that needs to be rehabilitated before it can be occupied.
The VA and the lender allow the borrower to take funds at settlement and rehab the house before a certificate of occupancy is awarded. Plans, construction company approval, and inspections may be required depending on the work necessary to make the home habitable.
Note that you may qualify for a VA Supplemental Loan which can be more appropriate if you are rehabilitating a home that currently has a VA loan. With the right planning, this type of loan can be quite valuable for the veteran who buys a wreck, fixes it up, and moves in.
Prefab Manufactured and Mobile Homes
Technically, VA loans can be used to purchase a mobile home or a manufactured home. But one challenge commonly faced by veterans is finding a lender who will close the loan under VA guaranty.
With mobile home financing, the great fear for lenders, of course, is that some morning the collateral on the loan could have disappeared by having been driven away. This possibility will invariably require that the wheels be removed and the home be permanently affixed to the earth.
For prefab homes, a VA mortgage can be used for the purchase of land, site preparation and erection of a home that is manufactured in a plant and therefore not stick built from scratch on the home site. Such a prefab manufactured home is actually brought to the site on a truck, off loaded, and erected in a day or two.
Once erected, equipped, and certified for occupancy, it becomes a home able to be resold as a residential unit subject to no special treatment.
Buying a farm is possible with a VA loan. If there is a house located on the farm, and if the house will become the veteran’s home, then the VA will back the loan with its guaranty. The VA will not cover the value of the land in excess of the home site, nor will it cover silos, barns, equipment or livestock.
The VA loan for a farm will involve an analysis of the crops and farm income available for mortgage payments even though the loan cannot cover more than the home and the home site. This makes the U.S. Department of Agriculture a viable alternative because they are equipped and funded with an emphasis upon farm income.
You may find that the U.S. Department of Agriculture could be useful here too—check out this website: http://www.fsa.usda.gov/. The VA and the USDA’s Farm Service Agency should be evaluated in conjunction with each other to find the optimum financing source for your farm purchase.