Like with any home loan, there are some title restrictions associated with VA home loans. For instance, the VA will not guarantee home loans on any property in which the borrower’s ability to sell is restricted.
What does this mean? First, we need to define title restriction.
What is a title restriction?
When you buy a home, it’s not just the sticks and stones the house it built with that you’re buying. In most cases, you’re also buying the land the home sits on. A title is a legal document that gives you the right to hold the property and the right to stop other people from attempting to hold it. Basically, the title proves you own the property and are free to do with it as you choose.
However, title restrictions can impede that freedom. Some restrictions placed on the title can control how you use the property and even how the property looks. An example would be a restriction that prevents certain types of businesses from operating on a residential property.
These restrictions will be made known during the title search phase of a mortgage finance, but this is why it’s also important to buy title insurance. It is critical that you understand any title restrictions that exist before buying the land.
Different types of title restrictions
There are some important types of title restrictions of which you should be aware:
- Covenants & Conditions
Covenants and conditions restrict how the property can be used, as we saw in the above example. Easements are the right to use some part of another person’s land or for another person to use some part of your land for a specific purpose. And finally, a lien is a hold placed on a property to satisfy a debt. When you take out a mortgage, a lien is placed on the property. The lien must be cleared before the property can be sold.
VA home loan title restrictions
Some of the most common title restrictions popup in condo, townhome or other community property arrangements. For example, the association managing your community property arrangements cannot have clauses or bylaws that prevent the VA borrower from freely selling the property.
However, there are some exceptions. According to Chapter Nine of VA Pamphlet 26-7, “VA may guarantee a loan on which a title restriction limits the sale, lease, or occupancy of the dwelling to persons based on age, including a prohibition against the permanent occupancy of the dwelling by children, provided such restriction complies with applicable Federal law.”
For more information on how title restriction could impact your VA home loan application, call us today at 888-320-7888.