It is often a source of frustration for a potential VA loan borrower to find out that the VA approves loans of a certain type (it’s ok, for example, for a VA borrower to use their entitlement to purchase a mobile home or a plot of land, and it’s ok for a borrower to get a construction loan with their VA benefits), only to be told by every VA-approved lender they talk to that “they don’t do that.” The borrower is often confused at how the VA can allow something but lenders facilitating the VA loan will not. A common example of this is the borrower who wants to purchase a mobile home. The VA allows loans to be made to purchase a mobile home, but many lenders do not offer loans for those. The same is true of construction loans and modular homes.
So what’s going on? Why are these lenders refusing to offer these types of VA loans? The first reason is market conditions. Currently, it may be difficult to find lenders who offer VA loans for mobile and modular homes; in other words, the amount of lenders that are willing to offer those types of loans is quite small. These things change over time, however. It wasn’t always true that a mobile home VA loan was difficult to get. This is because market conditions change over time. Currently, there are higher risks associated with mobile home loans, and the risk is high enough and the complications aplenty enough that most lenders do not find it worth it to finance the purchase of mobile homes and modular homes. This is also often the case with construction loans, perhaps even more so.
Potential borrowers point to multiple sources (sometimes the lender’s own website) to support their stance that those types of loans are allowed. Many sources quote the VA stance on it which allows for borrowers to choose to use their money to purchase a mobile home, modular home, and/or a plot of land. The VA will even allow a borrower to build a new home with their VA loan benefits. Technically, this is all true. Technically, the VA allows all of those types of loans, and that is firmly established in the VA Lender’s Handbook, which the go-to resource for all policy related to VA loans. But while a borrower is technically able to apply for a VA loan for those purposes and have it approved by the VA as long as the borrower is credit-worthy, the lender is technically allowed to refuse to approve the loan.
Lenders that join the VA lending program do so voluntarily, and are considered “participating lenders”. Any lender that becomes a VA lender still has the freedom to choose which types of VA loans they will approve and which ones they will not. The VA is not able to force lenders to accept any and all types of VA loans in order to be a VA-approved lender. If they tried to do that, they would have so few VA-approved lenders that they would be unable to meet the demand of veterans looking to take advantage of their benefits and likely the entire VA loan program would eventually disappear. While this may be frustrating to some borrowers, if you look at how much money the lenders put on the line for every single loan, it makes complete and total sense why they should be the ones with the final word on where they put their money and who they risk hundreds of thousands of dollars on.
So while there are several options that the VA does permit but that a borrower will have a very difficult time finding, there are many more options that are currently widely offered by most VA-approved lenders, and the ones that are not will probably not be that way forever. As the housing market fluctuates, so do the types of VA loans that will be hard to find. Right now, the market isn’t great in regards to loans for mobile homes and construction, so in turn it’s difficult to find a VA lender for those types of loans. There are currently many options for those looking to use their VA loan benefits. VA-eligible borrowers can get VA loans on condos, townhomes, regular houses from all price ranges, multi-unit properties (like a twin home or four-unit apartment building) and other types of homes. If a VA borrower is not able to get exactly the VA loan he or she wants, there are still plenty of options and the borrower can always get a loan on what they want the conventional way if that is preferred.