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Financing the Farmette (under 5 acres)

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  • Financing the Farmette (under 5 acres)

    So we are getting pretty serious about a 4.8 acre place, but I have this nagging concern in the back of my mind that we are going to have issues with the appraisal if they don't consider the land or 56x30 barn.

    Am I right that they do not consider the acreage for a traditional mortgage? Anyone financed anything this size lately and how did it go? Did you have to go 20% downpayment or higher? Anyone do an FHA loan or less down? We are preapproved for more than enough, but I don't think the house will appraise at the purchase cost on its own (which really wouldn't make sense, I mean of course land and a barn add to the value).

    Please PM if you don't want to share with everyone, but I really would love some input. I am also talking to lenders today, but am looking for some COTH wisdom too. :-)

    P.S. I can't believe we are actually, finally, serious about a place! *EEEEK*
    DIY Journey of Remodeling the Farmette: http://weownblackacre.blogspot.com/

  • #2
    I don't think they considered the barn/fencing etc. at all when they appraised my place for a refi several years ago. Maybe a bank that specializes in ag property would be more flexible in that area?
    Lowly Farm Hand with Delusions of Barn Biddieom.
    Witherun Farm


    • #3
      It might vary. We closed on a house with property almost exactly two years ago. We were told if the house came with more than 5 acres, then the actual land was taken into account as part of the appraisal. I think part of that was b/c it is subdivide-able, not that we're going to do that. But it does add market value to the actual property. The land was given a certain value on its own, and then the house was looked at (3 of bedrooms, sq footage, year built, etc etc).

      We had trouble with the appraisal b/c there weren't many purchases of similar homes within 6 months in a certain radius. The appraiser had to widen the search area and also the sales timeframe.

      As a footnote, we did put more than 20% down and went with a traditional 20 yr mortgage. Hope this helps and good luck. The appraisal is nervewracking in this type of environment.


      • #4
        Oh gosh, I don't have any real good news for you, I'm afraid. When I was house shopping here Wells Fargo pre approved us for a goodly sum, BUT, Wells only does home loans, ie the home has to be worth the money, not the land or the improvements, manufactured housing is OUT etc..

        We used Farm Credit instead but they certainly don't offer those under 5 percent rates nor really a conventional 30 year mortgage. We had already had ag income and were planning to set up a new ag business so we took out a loan to purchase ag property including the doublewide - I must say it was far easier than a conventional mortgage with far fewer papers to sign, but the down was high as was the interest rate.

        I don't know how things are right now but I remember in the '90's there were a fair number of bait and switch loans out there - at the last minute you'd be told you didn't qualify for the "good" loan and would have to take one with points or a percentage higher - and I'm talking last minute as in you're at the settlement table and have given notice and hired a mover!

        Anyway, good luck, it can be done but the banks now really want to protect themselves so certain types of property are hard to finance.
        Courageous Weenie Eventer Wannabe
        Incredible Invisible


        • #5
          we went with a credit union, because the banks were not interested in a farm loan, only home loans, which would've required we put 35% down. The credit union did ask for 15% down though and that was hefty enough. And then the disasters started happening- new roof, new septic system, new house drain tiles, all in the first year, even after the home inspector assured us these were all in working shape- except that year we got the 100 year rainstorms. So reserve some money for unexpected disasters and make as high a down payment as you can. Stretching your finances will not work with the Murphy's Law of Farms* in operation.

          (*Murphy's Law of Farms: manure happens, constantly,even when you expect it and mostly when you don't)
          "The Threat of Internet Ignorance: ... we are witnessing the rise of an age of equestrian disinformation, one where a trusting public can graze on nonsense packaged to look like fact."-LRG-AF


          • #6
            We went through a mortgage broker and got a mortgage through Wells Fargo in 2008 and refinanced with Wells Fargo at the end of 2009. 5.5 acre property in New England not set up for horses at time of purchase, but with 20x20 outbuilding. The appraisal looked at the acreage up to 5 acres only (more than 5 would not have added any value) and then counted the outbuilding as a second detached garage to increase the value in the appraisal. Traditional mortgage and we had the 20% to put down. Lending is stricter now, but it will likely depend on the appraiser. Some are good and some are really bad.


            • Original Poster

              Second garage--I love it! Technically 30 x 30 of it is in fact a run in/open span, so it could definitely be a "garage."

              You guys are making me nervous though. It is not a ton higher in price than the same house would be in town, so that is good.
              DIY Journey of Remodeling the Farmette: http://weownblackacre.blogspot.com/


              • #8
                Originally posted by elctrnc View Post
                We went through a mortgage broker and got a mortgage through Wells Fargo in 2008 and refinanced with Wells Fargo at the end of 2009. 5.5 acre property in New England not set up for horses at time of purchase, but with 20x20 outbuilding. The appraisal looked at the acreage up to 5 acres only (more than 5 would not have added any value) and then counted the outbuilding as a second detached garage to increase the value in the appraisal. Traditional mortgage and we had the 20% to put down. Lending is stricter now, but it will likely depend on the appraiser. Some are good and some are really bad.
                This is very close to my experience. I've been a RE agent & broker as well. Our place has 97 acres (no barn), and as we got a residential mortgage, they would only include the first 5 acres in determining value - the majority of the appraisal was the house. But it was a foreclosure, and a deal so we lucked out. I don't think the barn would detract, but as elctrnc said above, would probably be added only as an out-building with a limited value for perhaps a 2nd garage.

                You might also try your local farm bureau or cooperative extension to see if there are any other funds you might qualify for, although probably not much out there.

                If the appraisal falls through, another idea might be if the seller would be willing to sub-divide the property, and then you get a mortgage for the house portion of it, and the seller might hold a mortgage on the barn part of the property. But 1) they might have a mortgage on the whole thing, including the barn, which would have to be paid off, 2) getting a survey, and the application to the town/municipality to subdivide will take some additional time, and probably more attorney and/or mortgage expense depending on the timing, and 3) not too many sellers are in the position to hold a mortgage. If the appraisal falls through, talk to your attorney to see if this would be feasible in the property's location, after you & your realtor have determined if the seller might be willing.

                Hope it goes through for you, and that your appraiser thinks the value is there!
                But he thought, "This procession has got to go on." So he walked more proudly than ever, as his noblemen held high the train that wasn't there at all. H.C.Anderson


                • #9
                  I just did this last year! 4.5 acre farmette, FHA loan financed through Bank of America. My appraiser looked at the outbuildings & luckily, one of the comp properties he was able to find was another house on 4-5 acres. The other comps were suburban houses. I believe the outbuildings & land were taken into consideration though as the FHA appraiser/inspector had to look at them for termites, etc, etc.


                  • #10
                    "Conforming morgages", those insured by the Alphabet Soup (VA/FHA/Etc.) or those packaged and sold as securities have some very strict rules (much worse now than before the mortgage meltdown). Seldom will a farm qualify. A small "farmette" might depending upon the value of the house and one outbuilding compared to the value of the land.

                    Credit unions are generally a better place to go for loans like this as most don't "package and sell" the loans like banks do.

                    Better still would be Farm Credit or other specialty agricultural lenders. They don't flinch when lending on property like this. They will often go down as low as a house on an acre.

                    Mortgage brokers can work out, but they can also be a nightmare. Depends on the broker.

                    Contact your local extension office and ask them about financing sources. They don't lend money, but usually know who does.

                    Good luck in the project.

                    Mangalarga Marchador: Uma Raça, Uma Paixão


                    • #11
                      If the property does not appraise high enough to get a reasonable loan - you may be able to get the sellers to reduce the price accordingly.

                      A LOT of properties are in that situation these days, unfortunately... but it's reality. Most sellers realize that unless they happen to come across a cash buyer, and one that doesn't do their homework... a failure to appraise for the purchase price is a deal killer.

                      Of course, depending on what sort of mortgage the sellers have to pay off with the proceeds... sometimes they just elect not to do the deal. If they are underwater and don't NEED to move, many will just stay put until the market rebounds sufficiently for them to see some equity.

                      The mortgage process is pretty brutal these days. We bought our new place about six months ago (house on acreage, not a farm) and the paperwork just about killed me. At one point I had to furnish a copy of my stepson's HS transcript. Why, you ask? Well, no ... he wasn't on our mortgage, LOL... they wanted to know exactly when he would be going off to college, since they were going to factor his tuition costs into our expenses. Yes, even though he is still in HS and we are not actually PAYING any tuition.
                      We move pretty fast for some rabid garden snails.


                      • #12
                        Wow...we have bought two properties about the same size, one in 1995 (that
                        appraisal actually had a section for the land alone-$85,000 for 5 acres and then
                        the buildings). Didn't have a problem here in Texas in 2001. Refinanced last year but with the same bank and some program that didn't require an appraisal.

                        This place, we just throwing money at it and will be lucky to break even even if the market comes back. If I ever meet the home inspector that did this place,
                        he's toast.


                        • Original Poster

                          Originally posted by Lucassb View Post
                          The mortgage process is pretty brutal these days. We bought our new place about six months ago (house on acreage, not a farm) and the paperwork just about killed me. At one point I had to furnish a copy of my stepson's HS transcript. Why, you ask? Well, no ... he wasn't on our mortgage, LOL... they wanted to know exactly when he would be going off to college, since they were going to factor his tuition costs into our expenses. Yes, even though he is still in HS and we are not actually PAYING any tuition.

                          This is an estate, so no mortgage for the sellers. It has been on the market 280 days and is now 40k below the original asking price. I think they are motivated. Maybe it 'not appraising' would be a good thing if the price gets knocked down further!

                          We will probably make an offer this week, assuming we decide to go for it. I plan to lowball, so we will see!
                          DIY Journey of Remodeling the Farmette: http://weownblackacre.blogspot.com/


                          • #14
                            There is some kind of Rural Home Loan program, maybe through the USDA? You can get 100% financing, which helps if the appraisal is an issue. Your agent should be able to help you out.
                            Man plans. God laughs.


                            • #15
                              We purchased a 16+ acre farm last year with multiple outbuildings plus a large bank barn and house. We have more 3rail vinyl fence than I ever imagined owing and a house that was very liveable and did not need any work except for a good cleaning.

                              We established a relationship with a small local bank and got a traditional mortgage for 20 years with 15% down. We could have put 5% down and the local bank would have then sold the mortgage to Wells Fargo, but we got a better rate and shorter term by staying local plus did not have to get PMI.
                              We were told that after a certain amount of acreage, it does not help the appraisal because the banks do not see value in additional acreage. Doesn't make a lot of sense to me!

                              Use the length of time the property has been on the market to your advantage. This place was on the market for over 400 days when we finally looked at it. We knew it was for sale earlier but didn't even consider it because it was so far out of our price range. We negotiated HARD and were willing to walk away and ended up at almost $200K below the original asking price. It was a great lesson for both of us, as we had both bought properties before but never "worked" it like we worked this deal. We were also lucky enough to have a realtor who gave us great advice and stuck by us through 2 years of looking at some pretty raunchy properties that we could afford! We were definitely able to use the economy to our advantage as well.

                              Now is a great time to buy! Good luck in your adventure! It’s a lot of fun!
                              "You can't fix stupid"- Ron White


                              • #16
                                Try Farm Credit. I have one mortgage at 2.9% and the other at 4.3%.


                                • #17
                                  Shakeytails - I need to meet YOUR mortgage lender!

                                  Wow , I thought I was good on a small farmette (and second home) at 4.8%. Man oh man - I may need to move to KY if that is what makes the difference!
                                  "Her life was okay. Sometimes she wished she were sleeping with the right man instead of with her dog, but she never felt she was sleeping with the wrong dog."



                                  • Original Poster

                                    What do you have to put down with farm credit?

                                    We just won't have enough to do 20% of this place. Not going to happen with the amount of money we need to put into it right away before we even move in. Bank is offering 4.25% (yesterday) on a 30 year FHA, but that does require PMI, which blows (we don't currently have an FHA).
                                    DIY Journey of Remodeling the Farmette: http://weownblackacre.blogspot.com/


                                    • #19
                                      Farm credit? You need to ask at your local office. They have a ton of discretion as to how the loan is structured.
                                      Courageous Weenie Eventer Wannabe
                                      Incredible Invisible


                                      • #20
                                        Have you been to your local Farm Service Agency office? This is not the Extension office (althouth they usually know about each other). It's mostly a USDA program and they may have some information for you.

                                        Right now downpayment requirements are kind of stiff. That's part of the the "hangover" from the days when banks would lend 110% of value on bare land and write "interest only" loans for five years. The only way to know for sure that the current downpayment requirements are is to call the financing agency in question and ask them.

                                        You are going to have to let your fingers do a lot of walking. The information you've gotten here is good but generic. You'll have to spend some serious time calling around in your area.

                                        Good luck in your project.

                                        Mangalarga Marchador: Uma Raça, Uma Paixão