Rural Mortgages

[MicroPilot]

Ya'll need to call Farm Credit Services. They specialize in these types of loans. They will do construction draws too. See my previous post.

They financed the purchase of 32 acres and the construction of my home on this land. No problems or subdivisions required.

 

[DaveNay]

We also had this problem with our 15 acre purchase, however they wrote the loan anyway, because they had taken our loan fee, and had completed the entire approval process before they found out the acreage. I never hid the fact from them, it just never came up! They also never stated anywhere in there loan application proccess or paperwork that there was a size limit. They were nice enough to work with us, and they pushed the loan through the underwriters manually, instead of the automated process.

The other problem we had was with comps. We had an appraisal on the land, but they were just treading water trying to determine if it was a correct value. They suggested that we get comps from as far away as neighboring counties....if you are at all familiar with land in northern IL, one county away my 15 acres could be worth $2-3 million, so that wasn't very usefull.

Dave

 

[MarkV]

Well at least I am not alone. I was somewhat aware of the problem before we started looking for a mortgage and I just could not understand why. Cowboydoc’s explanation of the government guaranteeing home mortgages makes it much clearer. I hadn’t though of that. The rental property is 5 acres with two structures, only one being lived in. When we looked at mortgaging it they called it commercial so it would require a larger down payment and a higher rate. That’s what lead to mortgaging the second home to buy the rental. I bet it is just like the land, the government doesn’t want to guarantee investment property.

Did a search and found that the closest Farm Credit Services office is a good 100 miles away. We will give them a call and see if they do loans in our area. I will also see if there is another similar organization that works with rural owners in our area.

One of the mortgage brokers I have been talking with called to see if I was ready to go because there was a “special deal” that may only last a couple of days. I’ve bought, fixed and sold houses as a sideline for a good number of years and every broker I have talked to had a “special deal” you need to jump on now. It just makes me smile. Anyway, when I said I was rethinking the whole thing because I didn’t want to split up the 14 acre tract he all of a sudden knew some lenders that made exceptions to the 10 acre rule and would look into a “special deal” just for me. I had to smile again. /forums/images/graemlins/grin.gif We will see what he comes up with.

Thanks all, I am still interested in what others have run into when buying rural.

MarkV

 

[Gatorboy]

<font color="blue"> “special deal” </font>

I thought I was the only person that had such GOOD LUCK. You can't believe how many "Special Deals" I get offered -- I think to myself, "Boy, it was a good thing we decided to buy this widget when we did, what are the odds?". /forums/images/graemlins/grin.gif

 

[hazmat]

Mark,

Is the property zoned commercial? the govt - ie fannie mae will back up to 4 family properties. Don't know if the two houses is screwing it up.

you might find more info on "conforming" loans at their web site fannie mae

PS my floors still look great a year later. Thanks for your help.

 

[Varmintmist]

Fannie is the broad that gave me trouble also. /forums/images/graemlins/grin.gif I guess she doesnt like to back more than 6 acres. That cut my possible lenders from about 30 to 5, then I decided to go modular and that cut it to 2. I finally found a local bank that would take the loan for the house. I owned the land outright so it is collateral and considered money down so no PMI.

I guess they want everyone to live in a development. /forums/images/graemlins/confused.gif Not happining.

 

[Briarwood]

Farm Credit Services is indeed the place for you to check with. In the past, I recall that you needed to show that you had been rejected by other/another conventional lender(s) before they could lend to you. A good alternative is a small local bank (if you can find one) that is familiar with rural lending and does not sell all their loans in the secondary market. Years ago, Fannie Mae and Freddie Mac set national standards for mortgages and the underlying collateral to enhance the buying and selling of mortages between lenders and investors. One of the standards is that the value of land should normally not exceed 30% of the total value of the mortgaged premises. That is why the rule of thumb of limiting the collateral to 5 or 10 acres exists. Also, many of the rules for mortgage lending were developed in response to the land speculation deals and loses during the Great Depression. When some of these rules were eased in the 1980's and we experienced the S&L debacle that included more land speculation (among many other problems), the rules were again tightened. Many lenders today are reluctant to hold mortgage loans in inventory because of the risk and prefer to make their money closing the loans and selling them into the secondary market. If you can, go directly to the lender and find out what types of financing is available that is not tied to secondary market standards. Unless you have no other options, I would not use a "broker" that will charge a fee to find you the financing. You should be able to do that yourself. As they say, there is more than one way to skin a cat. Talk it over with your banker. Since my property had too much acerage to qualify for a first mortgage loan meeting secondary market standards, I arranged for an equity line of credit with interest only payments and a ten year term with my bank. This arrangement is working for me but might not be the best for you.

BTW, if your other acerage is being used for agriculture then most banks must look at your property like a commercial use rather than residential.

The issue raised about construction loan draws: Prudent lenders do not make construction payouts to any contractor until the materials paid for are attached to the real estate. The idea is that the mortgaged collateral should always be worth more than the money disbursed by the lender. I have seen many good contrators go belly-up. A banker (lender) that will disburse your mortgage funds to a builder just because he trusts him without ensuring that the work is done (no inspection) is doing you a disfavor. You may end up owing that banker the full value of a house that is only partially finished and with no more funds to complete it. Its not as much the banker's problem as it is yours!!!

FWIW

 

[dmccarty]

Briarwood,

I aggree and sorta disagree with what you say about the bank inspecting the house construction. /forums/images/graemlins/grin.gif

First off my builder is different in a couple of ways. He is in his 60s and has been working in the business for decades. He is a PE. He worked for the state for years where he was responsible for all state buildings. He wrote building codes for the state years ago. He worked for RTI investing storm damage to structures. He has been building residential and lght commercial for decades. He is a very unusual man. Could he go out of business? Yes he could. It does happen to good builders. But its not likely. My biggest worry with him is his health.

When the bank manager says they trust him it is with very good reason. And I trust him. Otherwise I would not be working with him. I have talked to many builders over the years. I can think of two that would build my house. One of these is building our house. Most builders I have talked with I would not let them build a dog house.

Now to inspections. /forums/images/graemlins/grin.gif The same bozos who appraised my land at half of the market value are "inspecting" the house construction. I saw an "inspection" one day. He drove up. Got out of the car. Walked to the end of the driveway. Looked at the house from a distance since he did not want to get his shoes dirty. Checked off some stuff on the clipboard. Got back into car and left. Took about 60 seconds. I wish I had that job. What he had to inspect was the foundation. At this stage the footers, foundation walls, plumbing, and gravel had been installed in prepartion for the slab to be poured.

Since he never got within 50 feet of the house he could not tell if the pipe buried under 350 tons of 67 rock had been tested. Nor could he tell if there was 350 ton of rock since he did not look. Of course he could also not tell if the 2 inch rigid foam was in place from his close inspection technique of viewing from a distance. Since he measure NOTHING how could he have a clue as to much material had gone into the house?

Sorry if I'm a bit sarcastic about the idea of THIS bank inspector protecting anything. I think my dog knows more than he does. I doubt that the inspector has even seen my design much less understood it. /forums/images/graemlins/grin.gif

The big issue we had with materials was regarding the brick we wanted. This was a not a big expense. But the brick we picked was running out and they would not make any more until this fall which did not fit our schedule. So we had to pick brick at a different company to fti the schedule. The interest cost on this was nothing and the likley hood of someone stealing cubes of brick is minimal. It cost us lots of time and aggrevation as we had to scramble and redo the work to pick the brick again.

But that was an exception I will grant. To back up what you are saying we had/have an situation with the woodstove. We have been talking to them for a good year or so. They have been in business for years. We wanted to come out and put in the chimney before the shingles where installed. To make a long story short they wanted half the cost up front and where being a bit pushy on a start date. We balked at the moneyf up front idea. If they had installed as promised they would have the money next week. Then they changed the install date from this past week to a couple of weeks in September. I'm not paying a contractor to do the work until they have done some work. They likely have lost our business. The builder thinks their cost was too much and knows some other people who can install the chimney for less money. We shall see.

So that is a long way to aggree and maybe disagree. /forums/images/graemlins/grin.gif /forums/images/graemlins/grin.gif /forums/images/graemlins/grin.gif /forums/images/graemlins/grin.gif

Later,
Dan

 

[Briarwood]

Dan:

We agree/disagree because we are not really talking about the same thing, well not exactly. Bankers either have an employee or third party inspect the construction before a payment (draw) to make sure that the amount of work agreed upon has been completed to that point. The banker's lien (mortgage) only covers real estate and materials only become part of the real estate when they are used in the construction; but materials not installed/constructed are not part of the real estate and are not considered collateral. The bank's inspector can sometimes ascertain the percentage of completeness of construction without a close inspection. In fact, the bank's inspector is not looking for detail or if something is even done correctly or by code. He/she is ususally checking to make sure phases of construction are complete before the banker disburses more funds. The detailed inspections you speak of should be made by local jurisdiction code enforcement officers such as plumbing, electrical, and building inspectors. However, getting back to the inspector working for your bank, I think you should mention to your banker your impression that he is not getting an adequate inspection. There are lazy employees and lazy third party inspectors as well as just plain sloppy bankers. If the banker is satisfied with that kind of performance then I would eventually find another banker.

I am glad you found a trustworthy contractor that both you and your banker are comfortable with. If you or your banker did not trust him, you shouldn't even consider doing business with him. However, that is still no reason to advance funds to him until he has completed phases of the work. Always ask yourself, what would I do, how would I be able to complete the house if something happened to my contractor. "I trust this man, but what if he is seriously injured and hospitalized or dies in the middle of my project." Will the money be available to pay someone else to finish the job or have I paid an excess amount to the contractor that I may somehow have to recoup from his estate?

I am not saying you shouldn't trust people. I am trying to make a point that you should be careful and so should your banker. Buying/building a house is one of the most expensive things and the biggest investment most people make in their lifetime. Just be prudent (and so should your banker).

Be prepared for contingencies and don't think it won't happen to you. I once knew a guy that decided to do his own work and pay for the materials as he went without borrowing any money. He came to me one day hat-in-hand begging for construction money because his house that was almost finished had burned to the ground. He had decided that he would wait until he finished the house before insuring it. I can only imagine how he felt and how he could have saved himself a whole lot of time and money if he had insurance.

It sure is easy for me to preach like this, but I have seen much in the last 30 years, both good and bad. I hope your project is successful and that you will love your new home as much as my wife and I love ours in its rural setting. Good luck.

Briarwood

 

[gordon]

When we went for the mortgage on our current property we had to jump through the same hoops. Man what a pain in the neck that was. First they couldn't do it, then they could do it and so on.

The loan officer from the bank informed me that they would only appraise the property using three acres and the house (total property is 43 acres). The other forty acres were valued at pennies on the dollar. Next problem was getting comps on the property.

Reason that I did all the jumping---by far the best interest rate at the time. So in the end it was worth it.

But I did ask the bank if I didn't make the payments would they only repo three acres and the house and leave me the other 40 acres. Thinking I was serious they replied,, well of course we would take the entire property. They didn't find the same humor in it as I did. /forums/images/graemlins/tongue.gif

Good luck
Gordon