Guide to Loans for Oddball Homes | Think Realty

Guide to Loans for Oddball Homes | Think Realty
Written by Publishing Team

Many experts will tell you that you determine your return on an investment property when you buy it, not when you sell it. You can increase your profits by paying less for a home that gives you good rents, reduce your financing costs and possibly negotiate a discount from the listing agent. Some clever speculators are patiently searching for gold hidden in exotic ball properties, but these homes aren’t always the easiest to find or fund.

Here’s what you need to know about buying unique investment properties and the types of financing available.

Why do lenders hate “different” properties?

If you have a “caveman” really Cave, don’t expect mortgage lenders to love it. Several homes, log houses, farms, bungalows, green houses and castles are not loved by lenders because the unique properties are challenging to evaluate. Mistakes when appraising property can be costly in the case of foreclosure.

martyred a lot Journal of real estate finance and economics The study concluded that “properties that are more difficult to evaluate are less liquid,” which means that unusual properties are generally more difficult to offload in a foreclosure sale.

On the other hand, it is not difficult to evaluate typical homes. If a home in a plot of nearly 100 identical homes sells for $200,000, it’s fairly safe to assume that the neighboring homes are worth about $200,000 as well. But what about a nearby two-acre plot with a manufactured home, a swimming pool, and a pair of barns? This value is less certain, so the property is less liquid.

The advantage for investors is that the “odd” property is likely to be discounted even if its rent is equal to the homes of the neighboring area.

If you’re paying cash for a unique home at a discount, it doesn’t matter that it’s a whimsical thing. I won. If you are financing with a mortgage, you will have to work a little harder.

Financing an investment real estate

Homes in rural areas, and sometimes in upscale suburbs, often come with large areas. In mortgage lending, the phrase “wide area” usually refers to a total area in excess of 10 acres. Even with a lot less More than 10 acres can be considered “wide” when the area is much larger than what is normal for the area.

You can finance homes on large areas with traditional mortgage loans, but the value of the land may not be fully calculated from the total area or value of the property. For example, a 20-acre home might receive a “credit” for only 10 of them. This makes it more difficult for investors because the purchase of investment property usually includes down payments of at least 20%, and setting a ceiling on the value of the land can increase this requirement.

Be sure to ask your real estate agent if the property’s total area exceeds what is “normal” for the area to avoid unsightly surprises.

Another option for large areas of land is an agricultural or agricultural loan. Expect a cut of at least 25%. The Farm Credit Scheme (Farmer Mac) is a project sponsored by the government like Fannie Mae and Freddie Mac, but it supports loans for residential and agricultural purchases in rural areas. You can find lenders in your area by accessing the agricultural credit system’s search function. Mortgage rates are slightly higher than traditional home buying rates.

Mortgages for recycled homes

Homes constructed from recycled tires, straw bales, and cool taped earth. Unfortunately, these strange building techniques are unlikely to win over the typical mortgage lender.

Most (if not all) mortgage lenders share guidelines such as the Fannie Mae Guidelines, which state that “on a case-by-case basis, lenders must determine whether there is sufficient information to develop a reliable opinion about market value.”

As long as these properties are uncommon, assigning a value is not possible as well as a standard mortgage.

You will have to resort to other options. For example, you may be able to fund a lot without including the value of the improvements. The rest of the purchase price can come from an unsecured (personal) loan, line of credit, or a loan against a different property. Understand that “improved land” loans come at much higher interest rates (about 2% higher than residential mortgage rates).

Mortgages for wooden houses

Financing the purchase of real estate can be either very easy or a total headache, and it depends on two factors – the construction of the house and the location of the house.

In areas where log or kit homes are typical, such as the Pacific Northwest, it is easy for appraisers to prove their value.

If these homes are uncommon, assigning a value can be a challenge for appraisers and mortgage lenders. When there are few similar dwellings, the assessment is less accurate. Lenders usually underestimate the appraised value of the home upon underwriting, which results in a larger down payment for the buyer.

Kit homes may be disqualified for mortgage financing if they are not assembled by licensed contractors. If you can’t finance with a mortgage, the equipment provider or contractor may finance you. Or you can try to get a personal loan.

Mixed-use development mortgages

Mixed-use developments are communities intended for both residential and commercial activities. It is not always easy to finance homes in those buildings because commercial and residential lenders do not tend to operate in the same space, and they have different underwriting guidelines.

The classic mixed-use project includes a multi-storey building with businesses on the ground floor and living spaces on the upper floors. As long as the commercial space of the commercial portion does not exceed 25 percent of the total area of ​​the building, you can obtain conventional mortgage financing from a variety of providers.

However, for a mixed-use building where commercial activities occupy more than 25 percent of the total area, you may not be so lucky.

The only exception to this rule is loans through the VA Loan Guarantee Program. VA loans do not set a specific limit for commercial space in a mixed-use building—only that the amount of commercial space be a “consideration.”

Mortgages for ‘crazy’ floor plans

For buildings with “interesting” architecture, inadequate amenities (one bathroom for five bedrooms?), or unwieldy schemes, finding a fair market value can be challenging. This makes it difficult to obtain financing.

What counts as madness? Anything that reduces a home’s marketability in a way that’s hard to pin down. You can see it’s wrong, but you can’t identify it easily how wrong.

For example, what is the cost of a home that requires guests to walk through the master bedroom to get to the bathroom? How about a layout that places the kitchen and dining rooms on separate floors?

Fannie Mae’s underwriting guidelines state that a non-typical or unconventional floor plan restricts the “market attractiveness of the property.” If the lender agrees to finance it, the value will likely be discounted, effectively increasing the down payment requirements for investors.

If you agree to buy a home for $300,000, but the non-typical floor plan lowers the home’s value to $250,000, your 20 percent down payment is no longer $60,000. It rises to $100,000 (20 percent of $250,000 plus $50,000 to clear the lower valuation).

Small Home Mortgages

These days, many municipalities are addressing housing shortages by easing housing size and property density guidelines. This provides a great investment opportunity for those who wish to purchase and own small rental units.

When the property is small enough, it is no longer considered a “house”, which means that you cannot take out a loan to buy a home. To qualify for mortgage financing, the minimum home size for the property is 400 square feet. The dwelling must also be on an approved foundation, be taxed as real estate, and be constructed in accordance with local building codes.

If the dwelling is not considered real estate, you probably should not give a mortgage for it. However, it is possible that you may qualify for a manufactured home financing via the FHA Title 1 or Title 2 program. Talk to a mortgage lender to find out your options but don’t rule out the tiny home trend.

Specialized Mortgage Warnings

When looking for private mortgage financing, investors should understand that not all lenders are subject to the same consumer protection laws as traditional mortgage lenders.

Very small lenders, rural lenders, and private lenders can charge higher fees. Owner financing can be very complex. If you go to weed to finance your property, it’s probably a good idea to have a real estate attorney review the contract and loan documents before making a full commitment.

Real estate vs Chatel

Not all housing transactions are legally real estate purchases. Many non-traditional dwellings are considered personal property (baggage). In this case, you can skip many appraisal costs, title insurance, transfer taxes, and other closing costs.

This is important because the savings involved increase your bottom line.

Embarrassing has its advantages

Why would anyone jump through all these extra hoops to finance foolish homes? Because eccentric is another word for opportunity.

There is less competition. Homes are sold at a lower price due to a smaller group of buyers. Studies show that renters and your customers are less selective about quirky homes than buyers – they basically want the right location and are willing to sacrifice to get it. Buying an exotic home in the right location can be a very smart move.

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