Sometimes borrowers choose to buy a property that is not either in an urban or suburban area, but instead is considered rural in nature. Traditional mortgage loans can still be made on these properties, however there are certain requirements that must be met for the property to be acceptable for collateral.
First, the property must exist in an area where there is an active real estate market. Properties where no sales have occurred in the last 12 months are generally not considered an active real estate market. However, mortgage guidelines do allow some leeway when determining this. Usually comparable sales must be within the last 6 months (12 months on exception) and be within 5 miles of the subject if the subject property is suburban and within 1 mile if the property is considered urban. For a rural property, the appraiser may go up to 50 miles for a comparable sale and up to 12 months for the time of the comparable sale.
Another consideration for a lender who is reviewing a rural property is the size of the acreage and whether the property is used for agricultural purposes. While there is no set definition for agricultural use, if the property is a working farm or the highest and best use of the property is agricultural use, the property is not eligible for mortgage financing. In addition, excessive acreage can also be problem. This can indicate the potential for agricultural, commercial use, or possible subdivision of the land for development in the future. This would all result in an ineligible transaction due to unacceptable collateral. A word of warning, occasionally, someone may suggest only appraising the house and a five-acre parcel. This is not acceptable. The property must be considered as a whole for the mortgage transaction.
Rural housing presents a unique set of challenges for mortgage lending. Please contact your Googain Loan Officer for more information regarding rural property.