Buying A House On Acreage

by Torrey from Pennsylvania

Ask Kate about buying a house on acreage: Hi Kate, If I want to purchase a home with 16 acres included, how is the mortgage criteria different from just buying a house on a one-half to three acre lot?

Kate Answers: Buying a House on Acreage

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Hi Torrey, Mortgage companies like to lend in areas where properties are similar. In your area, are most of the homes situated on normal city sized lots or as you describe, 16 acres?

Depending on the mortgage program and the specific mortgage company, you'll hear the term excess acreage. Ask how many acres are considered excess to get an idea of that lender's comfort level for loaning on land.

Inquire into the number of loan programs applicable to buying a house on 16 acres. Look for more than one option.
Ask Kate about buying a house on acreage.

You may discover the lender is comparing the total price of the home on 16 acres to a similar property with only one acre. (But see comment below from Ralph.)

Other lenders give full value to the first few acres and only nominal value to the remaining land. This can affect the amount of your required down payment.

The mortgage loan approval will also depend on your intended use of the 16 acres.

Is the land for privacy, a nice view, or do you intend to board horses? Commercial use of land can narrow your choice of residential loan programs.

Here's a thought - If buying land is common where you live, have you considered calling a local lender who specializes in homes on acreage? If so, lending on 16 acres could be business as usual for them.

Remember to take notes when you shop for lenders. Write down questions like these before you make contact and take notes during the conversation.

I hope you'll come back to my website again in the future. Of course, all of my information is free. Remember to save Get Your Best Mortgage Rate to your favorites.

I hope you'll visit often for up-to-date mortgage advice for both home buying and refinancing. You can also invite friends to comment on this page or create a page of their own like you did.

Best wishes,

Ask Kate

P.S. Go to my Best Mortgage Rate Blog, an unparalled source of mortgage news.

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Comments for Buying A House On Acreage.

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Not correct
by: Ralph Migliozzi

Excess acreage rules are no longer decisions that are up to the individual lender. Appraisal rules changed in 2007 disallowing appraising a 20 acre parcel with 5 acre parcels. This was because the property was not like for like and lenders had concerns about the marketing of larger acre properties. So to be clear, the practice is not allowed at all.

Hi Ralph, Kate here. I'm glad you pointed out that appraisal guidelines can change. This highlights the need for a mortgage originator that is loan construction savvy. A lending practice that is acceptable today could change tomorrow.

All-in-One Construction Loan
by: John R. in Kansas City, MO

I own 38 acres free and clear, appraised at about 250K. I'm planning to build a new home, approx. $800K to $900K.

Of this amount I would plan to use $400K or so from available cash resources and borrow the balance for construction and permanent.

I'm thinking about 5 year fixed/ARM and would likely pay down the loan about $100K per year. Current net worth approx. $4.5M, retired. Joint income is $100K per year.

I've never done a construction loan, so uncertain how to best proceed given these facts.

Hi John,

Congratulations! Besides a strong credit history, having equity and/or cash to bring to the table will pave the way for a smoother construction period. You should end up with a more superior permanent loan also.

So here's what I suggest. Go to Residential Construction Loans to read about different building finance options.

Once you have that under your belt, the next step is mortgage pre-approval. Not only will your chosen bank be pre-approving you, use the process to pre-approve them.

This is crucial because you want to be assured that the lender is construction loan savvy. The process is susceptible to many twists and turns so you need a mortgage originator who understands construction financing and is extremely experienced in the process.

Go here for some tips: How to Compare Mortgage Originators with Ease.

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You can also ask Kate about your mortgage at Ask Kate About Buying a House.

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