Financial Facts: Both the borrower and the property must be approved
February 23, 2013
When a potential borrower first meets with me they have one concern, will they be approved for the mortgage. They have good jobs and money in the bank. They have decent credit scores and they have money for a down payment. Most likely they will be approved. But the one thing that very seldom comes up in the conversation is if the property will be approved too.
I would estimate that well over 90 percent of the raw land and homes here in the High Country are eligible for conventional mortgages. It’s that other 10 percent that can really cause a lot of sleepless nights for both the buyers and the sellers.
An example of this type of property is one with an old substandard cabin on a great piece of land. The land has views and year-round access, but the old cabin has running water only when it rains. The well water comes from an illegal hole in the ground and the septic system is in major disrepair. I would bet that we are going to have a hard time finding a lender for this property.
If you are looking for a piece of land or a fixer-upper, make sure to take time right up front and visit with your mortgage lender. A few minutes of education will save you a lot of time and it will make it easier to know what to walk away from before you fall in love with that property.
Other examples of hard, if not impossible, properties to finance are ones such as a raw piece of land that you cannot get to in the winter unless you hike or ride a snowmobile to get there. If the county does not have year-round maintenance and the local fire department cannot get there, I suggest that you keep looking, unless you pay cash for the property.
If the home is made of straw and stucco or old rubber tires, I can tell you right now most all conventional lenders will not finance that home. If the home is off the electric grid and the closest power pole is miles away, you will find it hard if not impossible to finance.
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Another problem that we are seeing here in the High Country is homes where the actual value of the land is significantly higher than the value of the existing structure. I have had very few of these types of property approved by an underwriter in the past and I anticipate it getting even harder in the future.
Now keep in mind that even though these types of homes are hard to finance, they are not impossible. If you as a buyer are looking to buy a unique home or unusual piece of land there are lenders who will take that risk. But they will require a much larger down payment, from 20-50 percent of the purchase price.
The bottom line is that you need to meet with your lender right up front if you are looking for that unusual home or land. Get educated on what will or will not be approved before you invest a lot of time and energy into a property that will never be approved.
For answers to your mortgage related questions, call Bob Kieber at (970) 453-4700 or email him at email@example.com. Bob is a local mortgage lender with Centennial Bank. He has 30-plus years of professional experience in real estate, finance and investments, and is a longtime resident of the High Country. Member FDIC, Equal Housing Lender. NMLS Bank #401640 Broker #289610. For tax benefit information please consult with a professional tax advisor. The opinions expressed are those of the individual, and do not necessarily reflect those of Centennial Bank.