Financing A “Unique” Property
A man’s home may be his castle, but if it’s really a castle, he’ll have a hard time getting a mortgage loan for it — mortgage lenders shy away from “oddball” properties.
Why the aversion to castles and other unique home types? Because unique properties are a challenge to appraise and lenders have to plan for the possibility of foreclosure anytime they approve a home loan. Unique homes are hard to unload at foreclosure sales.
Think about it: if your home is identical to 99 others in your neighborhood, all of which have modest acreage and a recent sale price near $250,000, it’s a safe bet that your home is also worth around $250,000.
But what about that ten-acre lot nearby with a manufactured home and a couple of barns on it? Finding the value for that can get difficult.
If you’re paying cash for a unique home, it won’t matter that it’s oddball. If you’re financing with a mortgage, though, you’ll want to plan ahead.
Here is a list of most-commonly rejected properties, and what you can do to borrow against them.
Mortgages For Homes With “Extensive Acreage”
Homes in rural areas, and sometimes in high-end suburbs, are often sold on lots with extensive acreage. In general, “extensive acreage” is total acreage exceeding 10 acres.
However, even lots with less than 10 acres can be considered “extensive” when the acreage is much larger that what is normal for the area.
In general, a mortgage lender will allow homes on large lots, but if the land has value, that value may be capped or may not count towards the property’s total acreage or value. A home with 20 acres, for example, may only get “value” for 10 of them.
Reducing the amount of acreage lowers the value of a home and may require you to increase the size of your downpayment. You may also have a difficult time refinancing your home in the future.
Be sure to ask your real estate agent whether your home’s total acreage exceeds what is “normal” for the area.
Mortgages For Green Houses
Building a home using recycled tires, or cola bottles, or whatever, is cool. However, eccentric building materials or techniques — no matter by how much they reduce your carbon footprint — may raise a few eyebrows with your mortgage lender’s underwriting department.
For purposes of finding a home’s value, Fannie Mae’s guidance to mortgage lenders reads, “On a case-by-case basis, lenders must determine whether there is sufficient information to develop a reliable opinion of market value.”
In plain-speak, this means that lenders are discouraged from assigning a value to property without similar homes against which to compare it. And, because “green homes” are rare, assigning a value to them is next to impossible.
With no value, there’s no mortgage. Therefore, don’t build the only green home in your area and expect to get it mortgaged. Lenders will take a pass.
Mortgages For Log Homes
Log home financing can super-easy or a complete headache, dependent on two factors — the home’s construction, and the home’s location.
In areas where log homes are typical, such as the northern Wisconsin, appraisers will often have little trouble locating nearby sales of similar homes, which makes assigning a value to a log home fairly simple.
In areas where log homes are uncommon, however, assigning a value can be a challenge. Often, without comparable homes, an appraiser will reduce a home’s value which results in a larger downpayment for the buyer.
Also, note that using a log home kit to build your home may disqualify you from getting mortgage-approved. If you’re unsure of whether your log cabin will qualify for a home loan, get starting by talking to lender.
Mortgages For Mixed-Use Developments
A mixed-use project is a building devoted to both residential and business activity and, sometimes, it can be difficult to get financed for a residence in the project.
The classic example of a mixed-use project is a multi-story condo building with commercial business on the ground level. So long as the square footage of the commercial portion does not exceed 25% of the building’s entire square footage, you should be fine to get financing.
However, for mixed-use building where commercial activities exceeds 25 percent, you may out of luck.
The one exception to this rule is for loans via the . VA loans do not specify a specific limit for commercial space in a mixed-use building — only that the amount of commercial space be a “consideration”.
Mortgages For “Wacky Floorplans”
For buildings with peculiar architecture, insufficient amenities, or impractical layouts, finding fair market value can be a challenge. As a result, it can be hard to get homes such as these financed.
It’s difficult to list the characteristics of a “wacky floorplan”, but you’ll often know it when you see it.
For example, a home that requires guests to walk through the master bedroom in order to get to a bathroom; and, a home where the kitchen and dining rooms are on different floors can be considered out-of-the-ordinary.
Fannie Mae’s underwriting guidelines state that an atypical or functionally-tricky floor plan restricts “the market appeal for the property”. Therefore, although the home can be financed, the value of such a home will be discounted.
So, if you agree to purchase a home for $250,000 and your plan is bring 3%, or $7,500, to closing via , but then the atypical floorplan lower the home’s value to $200,000, your downpayment would rise to $56,000.
That’s $50,000 for the difference between the home’s purchase price and its value, plus another 3%, or $6,000, for your HomeReady™ downpayment amount.
Mortgages For Tiny Homes
When a property is sufficiently small, it’s no longer considered “a house”, which means you can’t a home loan for it.
To a mortgage lender, the typical minimum size for a property to qualify as a home is 400 square feet. Furthermore, the home should also be on an approved foundation, be taxed as real estate, and be constructed according to local building codes.
If the dwelling is not considered real estate, you likely can’t give a mortgage for it. However, it’s possible that you’ll qualify for manufactured home financing via the FHA. Talk to a mortgage lender to know your options.
What Are Today’s Mortgage Rates?
When you want to mortgage an unusual home, you may not have success with the first lender to which you speak And remember: just because one lender says “no”, that doesn’t mean others won’t say “yes”.
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