The Agony & Ecstasy of Financing Unique Properties
[ February 2020 | By John Leu, Loan Officer ]
Many people have the dream of owning a cabin in the Colorado mountains or a property with multiple homes. If you’re willing to pay cash, and if the person buying from you pays cash, then you’re set. But what if you or your future buyer need financing?
Property characteristics and your choice of lenders can greatly limit the financing that can be obtained. Is that dream home/cabin “off-grid”? Does the household water come from a well or spring? Does that two-home property have a manufactured home (a mobile home that is now on a permanent foundation)? These issues will limit, or kill, a buyer’s chance at getting a traditional mortgage loan.
Off-grid homes. The mortgage industry is designed for suburban America. But in western Colorado, electrical service and municipal water supplies may not exist at a property. If they don’t exist, or if they’re close but the cost to connect isn’t reasonable, then any utilities that are “common and typical” to your area are acceptable—if they’re reliable. Solar panels with sufficient battery storage and a substantial back-up generator can be fine, but a portable generator for your cabin won’t cut it. The home must have heating sources in living spaces and bedrooms that are separate from a fireplace.
As for water supply, wells and springs can be approved if they’re the only option and if the water purity and continuous flow rate is verified. If the well is shared with other properties, then you can get into a lot of rules for professional testing and monitoring of the its performance.
Manufactured homes. In previous articles, we’ve mentioned that obtaining financing for a single-wide manufactured home is difficult, as many residential lenders refuse to offer loans for them. But financing a double-wide can also be difficult or impossible if the intent is to use it as a rental property, or if there is more than one home on the property (one or both being a manufactured home). Historically, manufactured homes have not appreciated in value the same as stick-built homes. Accordingly, they are not considered to be practical for investment use. That includes having a manufactured home on a multi-unit property. National guidelines for residential lenders prohibit a loan for manufactured homes as an investment property or when there are multiple homes on the property. The solution? Pay cash, or if zoning allows, get the seller to subdivide the homes onto separate parcels before selling them (but that will add several months and expenses to the sale).
The intricacies of buying/selling/financing rural properties can have several hidden issues. This is a good reason to consult a knowledgeable Realtor and lender before you make an offer to purchase any rural or mixed-use property.