No, not loan-to-value, or LTV, but land to value. The value of the land compared to the entire property and yes, VA does have guidelines for such a purchase. Land value, or the value of the lot, will be much less compared to an improved property. An improved property in real estate means there is a residence built on the lot. If you have two one-acre lots side by side, it’s easy enough to figure out the one with the home built is much more expensive. Yet in rural areas, sometimes the land is much, much greater than an acre. Sometimes it can be 10 acres. 20. Or even a very large spread with a house located on the ranch somewhere. And this is where it can get tricky.
The land to value guideline for VA loans is 35 percent. That means the value of the land may not exceed 35 percent of the appraised value. VA lenders want the loan to go toward a home and not raw land. Taken to an extreme, it’s easy to see why a VA loan won’t be placed on a $400,000 property on 10 acres where land is selling for $10,000 an acre and the home is only 1,500 square feet and worth say $75,000. In this example, what’s the loan for, land or the home? Simple math would indicate the value is in the land, not the home.
There are ways to address land to value issues and the most conventional way is to subdivide the property to the point where the land value is less than 35 percent of total value. There will be some legal work performed as well as a new survey required but chopping up one big lot into smaller ones can meet this VA requirement.