More often than not when it comes time to have the appraisal done with properties with acreage, there can be challenges. (Or should we call it really what it is – PROBLEMS). That all has to do with $$$$$$$. Most types of residential financing take a dim view of excess acreage, pole barns, outbuildings, and farming activity. Think VA and FHA as two forms of financing that can be particularly tough when it comes to these items. As a rule of thumb, residential lenders will not lend on a working farm.
But you ask, “That makes no sense! Wouldn’t a lender rather have 10 acres leased out to a neighboring farmer, than have that land unproductive?” And the answer would be “No”. The lender would rather it not be farmed. And if the property has any outbuildings that cost $40,000 to build new, the appraiser and lender are only going to give $5-10,000 of value for it. So, as you approach buying a property with acreage, you’re going to want to double check your financing strategy to make sure it measures up.
The GOOD NEWS is that there are lenders who will lend on working farms. Think Farm Credit. Maybe others if you can convince them that you will not be farming the property once you buy it. Another factor that can make a difference is the size of your down payment. Generally speaking, there will be more options if you have a larger down payment. If your down payment is small or non-existent and you’re trying to buy a property with acreage, then you’ve got to bank on the property appraising for the sale price without a whole lot of value being given to the excess acreage.
Buying a property with these characteristics may take an extra dose of patience and persistence. Know that this is not our first rodeo. Having been in the mortgage business for 17 years, I can be in your corner coaching you over and around all of the challenges! Give us a call!