"Can I Use a VA Loan to Buy a Farm? What the Guaranty Covers on a Farm Residence"

The listing opens on the farmhouse: a wide front porch, a metal roof, and a kitchen window that looks out over a hay field. A little further down there is a pole barn, a run-in shed, a fenced pasture, and forty acres running back to a tree line. You have been saving your VA benefit for a place like this, and the first thing you want to know is how much of it the VA loan can pay for.

A VA loan can pay for the farm residence you will live in as your home, along with its home site, whether you are buying it, building it, repairing it or improving it. VA's handbook says the loan cannot cover farmland beyond the home site, the barn, silo or other outbuildings the farm needs, or farm equipment and livestock.

I'm Jeff Moran, a mortgage broker in Bluffton, South Carolina, originating since 1996, NMLS #483943, through C2 Financial Corporation, and licensed in fifteen states. I wrote this for you if you are a veteran looking at a farm, a ranch or a few working acres, and you'd like to know exactly where the VA loan stops. Every rule below comes from VA's Lenders Handbook, Chapter 7, Topic 8, titled "Farm Residence Loans" and last changed March 11, 2019. Where a rule comes from a different part of the handbook, I link that section right next to it.

Can I use a VA loan on a farm?

Yes, for the home. VA says a loan "for the purchase, construction, repair, alteration, or improvement of a farm residence" is eligible for guaranty. The guaranty is the part of the loan VA backs on your behalf, and it is what lets a lender make a VA loan in the first place.

The one condition in that sentence is about you. The farm residence has to be one that "is occupied or will be occupied" by you as your home. A farmhouse you plan to live in qualifies, the same way any home you live in does. The VA loan basics page covers eligibility, entitlement and the funding fee, and all of that applies here unchanged.

What a VA loan covers on a farm, and what it leaves out

VA draws the boundary in plain terms, and the right-hand column below is VA's own wording.

The VA loan can cover	The VA loan "cannot cover the"
Buying the farm residence you will live in	"nonresidential value of farm land in excess of the home site"
Building a farm residence	"barn, silo, or other outbuildings necessary to the operation of the farm"
Repairing, altering or improving the farm residence	"Farm equipment or livestock"
The home site the residence is on

The home site is the land that goes with the home itself. Everything beyond it that is valued as farmland, every building that exists to run the farm, and everything you farm with or raise is outside the VA loan.

Those items still have to be paid for. That money comes from your own funds or from separate financing for the farm itself, and either way it changes how much cash you bring to closing. If you would like help thinking through how the farmland, barns and equipment could be paid for, you are welcome to call me and we can talk it through.

Appraisals on acreage have their own questions too, such as how much the land and outbuildings add to value and whether there are comparable sales nearby. Buying a home on acreage walks through those.

Building a farm home on land you already own

You may already own the ground and want to build the house. A VA loan can pay for constructing a farm residence, and VA has a specific rule for land that already carries a loan against it.

A portion of the loan to build the farm residence "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)." A lien is the debt recorded against the land, such as the loan you used to buy it. Reasonable value is VA's term for the value its appraisal establishes.

In plain terms, the land has to be worth at least what you still owe on it. If it is, part of your VA construction loan can pay that debt off. If you owe more on the land than it is worth, the VA loan cannot be used to pay off that lien, and that is worth sorting out before you plan the build.

Farm income on a VA loan

This part of the rule applies only when "some or all of the income necessary to support the loan payments comes from farming operations." If your salary, a pension or other income carries the payment by itself, your file is underwritten like any other VA loan.

If farm income is part of the picture, VA says "the Veteran's ability and experience as a farm operator must be established." The lender also follows the self-employment rules in Chapter 4 of the handbook.

VA's Chapter 4, Topic 2, last changed February 22, 2019, says self-employment income is generally considered stable once you have had it for at least two years. A shorter history usually needs previous related employment or specialized training behind it. The lender also looks at whether the farm can be expected to keep producing enough income for your future needs.

When you're ready, please provide your complete income tax returns, all pages and schedules, please. We will need the past two years for your personal returns and for any business that you may have an interest in. We will also need a year-to-date profit and loss statement and a current balance sheet for the farm.

If you are an experienced farmer continuing the same farm operation and you run it on an operating line of credit, VA asks for more history. The lender gets records of the advances, payments and carryover balances on that operating line for the last three years, or longer if needed to show the operation is stable, and looks into the reasons for any build-up of operating debt. The self-employed mortgage guide explains how an underwriter reads a business return, and the farm is read the same way.

VA also tests what is left over each month after the payment and your other obligations. Residual income on a VA loan explains that second test, and it applies to a farm file the same way.

What a new farmer shows the lender on a VA loan

A new farmer, or an experienced one starting a new operation, does not have years of farm income on record, so VA adds a written plan to the self-employment rules. For a new farmer or new farm operation, the handbook says the lender must get these:

• Your proposed plan of operation, "showing the number of acres for each crop, amount of livestock, etc., upon which an estimate of income and expenses may be made."
• Your statement about equipment, saying that you own, or propose to buy, the farm equipment needed to operate the farm. If you will borrow to buy it, the statement should give full details of the repayment terms.
• An estimate of farm income and expenses, made by a local farm appraiser designated by VA or another qualified person, or the estimate used by a lender that has agreed to carry an operating line of credit for you.
• A commitment for an operating line of credit, or evidence of the resources you will use to cover operating expenses.

The estimate is built on your plan, your ability and experience, and the nature and condition of the farm, including livestock and livestock products. VA says the expense side "must detail labor, seed, fertilizer, taxes and insurance, repairs, machinery, fuel, etc."

How to get a farm home ready for a VA loan

1. You'll want to split the price in your own numbers first. Before you write an offer, it helps to work out what part of the price is the farmhouse and its home site, and what part is farmland, barns, equipment or livestock.
2. You'll want a plan for paying for the farmland, barns and equipment. That might be your savings or separate financing for the farm. Either way, you will want it settled before closing.
3. You'll want to know whose income carries the payment. If a salary or pension covers it, the farm income rules do not come into play. If farm income is part of it, the lender establishes your ability and experience as a farm operator.
4. Your records or your plan come next. If you have been farming for a while, please provide your complete income tax returns, all pages and schedules, for the past two years, along with a year-to-date profit and loss statement and a current balance sheet. If you are new to farming, please provide your plan of operation, your equipment statement, and either a commitment for an operating line of credit or evidence of the resources that will cover operating expenses. The lender gets the income and expense estimate.
5. If you are building on land you own, you'll want to know what you owe on it compared to what it is worth. The VA loan can pay off the lien only when the land's reasonable value is at least the amount owed.
6. You'll want to have the well and septic looked at early. Farm properties often have a private well and a septic system, the tests take time to schedule, and what to check on a well and septic covers the tests and the timing.

Common mistakes on a VA farm purchase

Counting the barn in the loan amount. A pole barn or a set of cattle pens may be why you love the property, and under VA's rule the VA loan does not pay for them.

Planning on farm income without the paperwork. Farm income can help support the payment, and it has to be documented like any self-employment income. A new operation needs the written plan and the income and expense estimate.

Building on land that owes more than it is worth. The lien payoff rule is a straight comparison. If the land is worth less than the debt on it, the VA construction loan cannot pay off that debt.

Forgetting how the land is taxed after you buy. Farmland often carries its own property tax classification. If the land is in Minnesota and enrolled in Green Acres, the 30-day application to keep the deferment after you buy is a filing to have on your list.

An example, with invented numbers

Numbers below are made up to show the mechanism. They are not a quote, and they are not anyone's real file.

Say you bought twenty acres a few years ago, you still owe on the land loan, and you would like to build a farmhouse with a VA construction loan. VA's appraisal gives the land a reasonable value.

Reasonable value of the land          $85,000
Amount still owed on the land          $52,000
                                       -------
Value above what you owe               $33,000

The land is worth more than the lien, so part of your VA loan can pay off the $52,000 at closing.

The answer changes if the debt is larger. If you still owed $97,000 on land with the same $85,000 reasonable value, the lien would be larger than the value. The VA loan proceeds could not be used to pay it off, and that lien would need a different plan before the build.

Common questions

Can I buy a farm with a VA loan?

You can buy the farm residence you will live in, along with its home site, with a VA loan. VA's handbook says the loan cannot cover farmland beyond the home site, the barn, silo or other outbuildings needed to run the farm, or farm equipment and livestock. Those parts of the purchase are paid for with your own funds or separate financing.

Does a VA loan cover a barn or outbuildings?

No. VA Pamphlet 26-7, Chapter 7, Topic 8, says a VA loan cannot cover the "barn, silo, or other outbuildings necessary to the operation of the farm." The farm residence and its home site can be covered, and the farm buildings are paid for separately.

Can I use a VA loan to build a house on farmland I already own?

Yes. A VA loan can pay for constructing a farm residence you will live in. If the land has a lien against it, part of the loan can pay off that lien only if the reasonable value of the land is at least equal to the amount owed.

Can farm income qualify me for a VA loan?

Farm income can support your payment. When it does, VA requires the lender to establish your ability and experience as a farm operator, and the lender follows VA's self-employment rules. Those generally look for at least two years of the income, documented with complete tax returns, a profit and loss statement and a balance sheet.

What does a new farmer need for a VA loan?

A new farmer, or a new farm operation, provides a proposed plan of operation showing the acres for each crop and the livestock, and a statement about owning or buying the equipment. The lender also gets an estimate of farm income and expenses from a qualified person. It also gets a commitment for an operating line of credit, or evidence of the resources to cover operating expenses.

Your next step

If you are looking at a farm and would like to work out what the VA loan can cover, which part of the price falls outside it, and whose income carries the payment, you are welcome to call me. We can go through the property and your plan together. For the farmhouse itself, VA pricing is in Rate & Best Fit on the homepage, and you can see it for your own scenario and choose a rate option that works best for you.

If the farmhouse needs insulation, a new heat pump or other energy work, a VA energy efficient mortgage can add that cost to the loan.

Nothing here is a loan approval, a denial, or a commitment to lend. VA Pamphlet 26-7 is the authority, and your lender applies it to your own file.