Appraisals - the dilemma.

[beowulf]

I would guess it's a little of both. Finding someone who will write a loan on land anywhere can be tough and with the market like it is I'm sure that just compounds the problem. Doing a cash deal is the easiest by far but with interest rates as low as they are now the last thing you want is a bunch of equity if you can avoid it. An extra couple thousand for an appraisal is insulting but in the long run financially irrelevant so that's what I'd do. There's no way I'd finance it myself unless I just had way more money than I ever needed, plus loaning money to friends or family is usually a quick way to make either hate you even though everyone always thinks they'll be the exception.

Puffy, what you say lines up with my thinking. We could finance without a loan but a loan made sense because of the interest rates right now, and because I am 77 and want to protect funds for my wife when I am gone, because I want our daughter and SIL to be a bit more directly involved in the finances, and finally - and this is important - we have another daughter and we have always managed things fairly between them- I told the home building daughter that whatever we 'give' them I have to find a way to impart similar value in some way to the other. They understand this. So, in a way, if we use savings for this build, it costs us twice as much as we have to give the same amount, at some time and in some way to the other daughter.

We have always been willing to help, as both daughters have turned out really well, they both worked two jobs during college, have always found jobs on their own, and mostly paid their own way. After college we told them we would pay their car insurance and cell phone bills for six months and they had to take it over then. Same with other things. It has worked out well. We also gave them each $500 into a Vanguard account at HS graduation, explained investing, and how contributing would build that up. They have contributed over the years and now, they each have over $60,000 in those accounts - part of their current savings.

 

[mx1alex]

Not sure if this would be any help to you at all but I have a coworker who just bought a house on 20 acres outside of Fresno and he got his load through National Grange (I had never heard of it). Home - The National Grange

He had to join the organization but said it was worth it compared to getting a loan through a traditional bank. They are more ag/rural based than typical lending institutions.

 

[beowulf]

Not sure if this would be any help to you at all but I have a coworker who just bought a house on 20 acres outside of Fresno and he got his load through National Grange (I had never heard of it). Home - The National Grange

He had to join the organization but said it was worth it compared to getting a loan through a traditional bank. They are more ag/rural based than typical lending institutions.

Thanks - I will check that out. A couple of lenders that could not make loans on more than 10 acres suggested something called USDA loans as they made loans on larger rural parcels. I looked into that as well, but it appeared that they only made loans to low income borrowers - though there are different programs apparently. I found a list of USDA lenders online - talked to two of them - both said they no longer made USDA loans. I should probably check into that a bit further. Anyway, about that time I decided to go with a HELOC at my local bank- I have had a HELOC with them for years - $80k - never used - and it is being phased out 8-3 (I have to draw on it before then or reapply). It was behind a first which has since been paid off. So it is a new HELOC that I am applying for - actually an increase in the HELOC to $250k - which is linked to the $2,500 appraisal cost - 10% of the loan amount.

 

[ponytug]

@beowulf Well, FWIW, we used our local credit union, twice. The first time, the appraiser took a photo of the front gate to compare it to other rural gates. The second time, recently, the appraiser wanted a photo of every room, but then did comparables to properties that left me head scratching as to why on earth the properties were related, beyond the fact that they had four walls and a roof, (different acreage / sq.f.t / bedrooms / location (suburban vs rural)), and neglected to include a similar sized property house that sold within the last three years two doors down. So, not impressed with the appraiser's talents either time (wildly different values, I might add). Our credit union didn't have trouble with the acreage, nor the fact it was rural, nor that it was ag and under an agricultural covenant (Williamson Act) when we bought it.

The thing that strikes me is that in the event of you and your wife's death, daughter #1 could find the change in title/mortgage costs challenging, and negotiating how to do right by daughter #2 at that time might get complicated, and that might bear some advance thinking now, rather than later, but I am not a lawyer.

Again, FWIW, locally, I only know of USDA loans for disadvantaged farmers, and commercial ag business.

All the best,

Peter

 

[civilian]

When we purchased our 80 acres, 3 1/2 years ago, we used savings and took some money from our investments. We sold the house 6 months later and used that to finance the home build. When we got to the garage and workshop buildings, we used Greenstone Farm Credit Services here in Michigan. They lent us money based on the township's appraiser's value we pay tax on. Greenstone never visited the property or had anyone come out. Did they look at county tax records, no idea. We tried the local bank we have used for over 30 years and their appraiser came out. He turned the loan app down because house was not finished. County building dept gave us occupancy, but trim was not done, nor all the cabinets built. The guy at the bank we were working with knew that ahead of time and didn't think that would be a problem. Well we paid for the appraisal, and maybe some other loan app fees and got nothing in return. UGH! So we found Greenstone. They even called us suggesting to refinance a year later to save us some time and dollars. My suggestion, if they are available to your area, look them up. Jon

Edit, we are zoned forest recreation or farm recreation. Big animals are aloud.

 

[plowhog]

You have mentioned "10 acres" a few times. What is the significance of that compared to your 90 acre parcel?

 

[Larry Caldwell]

My wife and I went through that back when we owed money. We refinanced to a lower interest rate, and no banks wanted to deal with us. WaMu was agreeable, but sent out appraisers straight out of Children Of The Corn who low-balled our appraisal about 50% and wanted multiple inspections. There was a mortgage broker across the street from my office, so I walked over. One credit check, one financial statement, and we had a mortgage. The funny thing was that 6 months later Wells Fargo bought the mortgage. They were one of the banks that wouldn't talk to us.

At the time, our credit union was not writing mortgages. If I were to do it again, that is the first place I would shop. I don't know about banks, because I haven't used one in 40 years. I went from a S&L to a credit union. Banks are too expensive and have horrible customer service.

 

[beowulf]

Well, FWIW, we used our local credit union, twice.

The thing that strikes me is that in the event of you and your wife's death, daughter #1 could find the change in title/mortgage costs challenging, and negotiating how to do right by daughter #2 at that time might get complicated, and that might bear some advance thinking now, rather than later, but I am not a lawyer.

Again, FWIW, locally, I only know of USDA loans for disadvantaged farmers, and commercial ag business.

All the best,

Peter

Tried the credit union as well - two issues there - first they won't loan on over 10 acres, and the second was that they are limiting their 'cash-out-refis' to $50k.

You are spot on re the challenges when my wife and I are both gone. We have some of that put together - and working to revise that a bit. Currently, to keep the property in the family, there are life estates to daughters, with property ultimately going to the grandkids, and with some insurance money and cash assets being used to even things out to any extent necessary - i.e., that can be a way for one to buy the other's half interest at a fair value if dividing and selling is not desirable. It's a work in progress and I continue to play the "what if" game, what if this, what if that. . . and trying to address any contingency fairly. There are many more considerations - it is the existing home that has all the amenities - barn, pool, pool house, tennis court, grounds and landscaping, orchard, green house, garden, orchard, tractor and tractor shed, and more. The daughter who wants to build on the property wants to do so because she enjoys the 'ranch- rural experiences, but when we are gone she will have to decide if she wants to move to our home (the ranch experience), or stay in the new home - a nice home but not much more. Just one more 'what if' to think about. The other daughter likes to visit but wants to stay in the city.

 

[kthompson]

You will find both lenders and insurance companies look at the acres and will back off of what they consider a farm as it just does not fit their business model in the ability to sell the loan or insurance risk with the reinsurance market.

However for farms, a simple "Farm Loan" search should bring up a few options. Yes the Federal Government does true farm loans. Not sure the name of they now use but Federal Land bank made the loan for our first house on our rural land in the mid 70's. Arbor One here will make farm loans but no idea where all they are. They are NOT funded by the Federal Government I understand. Call your county agent's office and ask them for the Federal Government lenders name and phone numbers. Most likely they have it.

 

[beowulf]

You have mentioned "10 acres" a few times. What is the significance of that compared to your 90 acre parcel?

plowhog, two things seem to be involved: 1) a number of the lenders (actually almost all) we have contacted will not make loans on parcels larger than 10 acres - that may have to do with selling the mortgage to Fannie or Freddie - I have heard that F or F do not always want loans with large parcels in the packages they buy - so it is a complication that lenders don't want to get into. And 2) When we have obtained appraisals in years past they have always advised that they only appraise up to 10 acres for loan purposes, i.e., the value they come up with does not consider the value of the rest of the parcel (in our case, the other 80 acres) even though all the property would remain as security for the loan. That was going to be the case now as well, as any appraisal would only be for the home and such and the surrounding 10 acres. I don't know for sure how they do that because there is no formal survey or marking off of 10 acres - I guess they only use properties of 10 acres in size as the comps.

Independent lenders - those who keep their own notes and service the loan will loan on more than ten acres - that is the case with the lender we applied with - but although they approved the loan immediately - it was subject to an appraisal which they cannot get done and so here we are.

We have no problem with them only valuing ten acres. . . if we could just get them - someone - to do the appraisal.

I did find a lender whose business model was to make loans without formal appraisals - they evaluated the property (desk appraisals) using online resources. They said they did this because it was a needed niche given that appraisals industry wide were taking months - they found that this worked well for them. I think they loaned only 50% of the desk appraisal- their safety margin. But then they withdrew from us because the zoning is AG. Anyway, I am probably going to pull the trigger this week on the HELOC and pay the $2,500 for the appraisal and be done with it - not a lot of choices.