Mortgage lending and property types
Day in and day out, Mark Wells at Preferred Financial Services talks to homebuyers planning to purchase a new residence. Questions often arise about whether a particular type of property can be purchased using standard mortgage financing programs. Here, he answers questions about how lenders view various property types in the mortgage approval process.
What do you mean by property types? This is not an exhaustive list, but different types of homes include mobile homes, modular homes, log homes, townhouses, condominiums, farms with acreage, or any home that does not meet the generic test of a “single family residence.”
Are any of the types above excluded from standard mortgage financing? In principle, all of the above can be financed using FHA, VA, USDA, or conventional financing. However, each property type can present its own difficulties in meeting all of the guidelines required by the lender before a loan for the property can be approved.
What is the biggest hurdle to obtaining loan approval for a “different” property? It is generally the appraisal and the appraisal guidelines that create the most difficulty. To do a valid market appraisal, the appraiser is required to find at least three other similar homes within a two-mile radius of the home being appraised that have sold in the last six months. While that is relatively easy to do for a generic home, it can be next to impossible to meet this guideline when dealing with a log home, a mobile home, or a home with features that differentiate it from standard housing.
What if I agree to put more down payment to cover the lender’s risk; will that help? Unfortunately, it does not. Higher credit scores, more down payment, and more reserves cannot overcome a property appraisal issue.
So what suggestions do you have before I put a contract on one of these homes? First, your contract language should specifically state that your offer is contingent upon the home appraising for the purchase price. That way, you will not lose your earnest money if the home does not appraise. Second, consider using a mortgage broker rather than a bank for mortgage financing, since a broker has access to multiple lenders. Some lenders may make exceptions to appraisal guidelines, and may actually specialize in more difficult properties. If you reach a dead end with one particular lender, your mortgage broker has other lenders who can take a look at the deal.
I welcome any comments or questions and can be reached at 864-235-9596 or via email at Mark@TheGreatestRates.com.
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