When you own a property in a rural area, the most likely reverse mortgage issue you’ll have is with the appraisal. The appraiser is required to find three similar sales in the past twelve months that are “nearby.” If similar sales cannot be found, it can be a challenge to get the loan approved.
Some of the common complications regarding appraisals on rural properties include excess acreage, multiple buildings, and uncommon property type.
Excess Acreage Complications
It is not unusual for a rural property to have 25+ acres on one tax parcel with the home. This acreage may be eligible for appraisal, but it will depend on whether the appraiser finds properties of similar size when looking for comparable sales. If similar sales only contain 10 acres of land, then the extra 15 acres won’t be credited toward the value used for the reverse mortgage loan.
In the above scenario, a good reverse mortgage specialist will advise you to consider splitting off the excess land into a separate tax parcel with the county, assuming they allow it. If left as one parcel, the entire property is encumbered by the reverse mortgage, and that can have significant drawbacks.
Multiple Buildings and Reverse Mortgage Loans
If your tax parcel has two buildings on it, your property is considered a two-unit property. If it has three buildings, it’s a three-unit property. To move forward with a reverse mortgage with multiple homes on one property, the appraiser would need to find similar two- or three-unit sales. That is always challenging, and sometimes impossible.
The other problem is that you live in one home, and someone else lives in the other. Would it be wise to encumber both homes with a reverse mortgage loan?
The best way to handle a multiple-unit property is to approach the county tax assessor about splitting the parcel into two. You would need to have a survey done in order to set the boundary of each parcel. The reverse mortgage would be done against the property and home in which you reside. The other parcel would contain the other unit(s) and excess land, and would not be involved in the reverse mortgage transaction.
There are situations wherein the second building can be considered a mother-in-law suite or accessory dwelling unit. The appraiser determines this eligibility based on a number of factors, but it can be much easier to get a property appraised when it is considered a one-unit property with accessory unit. The customer seeking the reverse mortgage cannot reside in the mother-in-law suite.
Reverse Mortgages for Unique Properties
Some examples of unique properties include:
- Log homes
- Dome homes
- Earth berm homes
- Exceptionally small homes
- Lower-than-normal ceiling heights
The eligibility of these unique types of homes for a reverse mortgage is determined by whether or not the property is structurally sound and readily marketable. “Readily marketable” will be defined by whether there are any comparable sales of a similar style property in the last 12 months.
Reverse Mortgages for Manufactured Homes
Homes that are pre-built and placed on a permanent foundation are considered manufactured homes. Manufactured homes are eligible for reverse mortgage financing if they meet certain standards. If you have a stick-built home on the property and a manufactured home, yours is considered a two-unit property.
Difficult But Not Impossible
The unique qualities of your rural home that probably once drew you to it may now be the complicating factors in obtaining a reverse mortgage. Most of these difficulties can be overcome or worked around by an experienced reverse mortgage specialist.
Consult a Loan Officer
If you’re worried that unusual characteristics of your home may keep you from the benefits and financial security of a reverse mortgage, give us a call so we can discuss your specific situation.
I have contacted numerous reverse mortgage companies and they are telling me they can’t get me one I live in a berm home as they call it one side and back of house built into hill have no other homes near except one that is similar to mine which is about a mile a way is there any one that can help me with this?
Thank you for the comment Ms. Lyons. Without knowing more about your neighborhood, it would be hard for me to determine whether you have an acceptable property. If there is only one other berm home “near” yours, and it hasn’t sold in the past year, it is unlikely your home would be eligible for a reverse mortgage. It depends on how you define “near”. I will reach out to you by email for further discussion.
I have a reverse mortgage on my rural home which sits on 40 acres and has a large metal barn situated on it. I was told that the barn would not have been included in determining the value of the appraisal, only the house itself because the FHA placed little or no value on outbuildings. Is this correct? I’d like to reduce the insurance on the barn structure if its not included in the mortgage. The only thing I got out of the mortgage company was that the barn need not be insured for their purposes. I haven’t always gotten correct information from such phone calls. Your input please.
Hey Jim. The barn may have contributed to your overall appraised value. Whoever said FHA doesn’t include outbuildings is incorrect. That’s up to the appraiser and a loan level decision, depending on what the comps support. You’d have to get your hands on your appraisal to see if value was given for a specific structure.
In regards to what is required for insurance, typically the lender requires you to have insurance for the appraised value minus the site value (land). As long as your policy has that amount of coverage, or more, they don’t look at coverage for outbuildings. They probably should, but that is not done.
Ultimately, this is all just my opinion, and the entity making the decision on your insurance will be your loan servicer who sends out your monthly statements.
Jim: I have contacted a reverse mortgage group before, and I was told a farm would not be eligible for a reverse mortgage. We are sitting on 2 parcels. The home is on 32+ acres and the next parcel is 17 acres. Would you mind sharing with me the name of your lender?
Hey Marie. I don’t think you’ll hear from Jim unless he returns to the site. Hobby Farms are allowed, but commercial farms are not. The underwriter will likely use Google Maps or Google Earth to see your property and try to gauge what’s being done on it. They will also lean on the appraiser to comment about farming activity. If it looks like there is activity, they will ask for your tax returns to see if there is income derived from it. If so, you will not be able to pursue the loan.
Was turned down for a reverse mortgage on my property. It is a 1/2 acre of land with a two story building & attached large garage. The problem that I have according to the loan company is that the property is in an industrial area. There are only metal industrial buildings in the area. The nearest homes are three blocks away in a residential area. They said because there were nothing to compare the building to (it is the only residential building in the area). Even though I qualified in all other categories, the home was the drawback. The assessed value by the Mohave County Assessor’s Office is $200,000. It is a two story building with 3 bedrooms upstairs & two full bathrooms. Downstairs is a one bedroom with a shower & toilet, large living room, computer room & kitchen. Title was recorded in February 2019. It is free and clear. I want to fix it up but don’t have enough income or credit to qualify for a regular loan. Reverse mortgage would be great. I want to fix it up so I can have family come live with me. I’m 80 years and blessed with good health. It would be great to put in an industrial elevator so I could live upstairs. From here I could enjoy the desert sunrises and sunsets. I need help to get this set up. Do you have any ideas.
Hello Virginia. Your home must be zoned residential vs. commercial, so maybe that is the issue?
I just received an Appraisal for my home and 7.51 acres. All the comps were on lots or .44 acres or less. So the appraisal only allowed $20,000 for lot size. My 7 acres should have come in around $300,000.The property is fenced and crossed fence has two barns, garage, pond and fence has just been updated. For this he estimated $20,000 We are in a very desirable place and all my neighbors including us have bee here at least 25 years. Since comps are not available in the immediate area how can we get them included.
Hello Lynda. This is a question we get often, and the answer is that there needs to be comps with acreage for you to get full value for your land in this transaction. Appraisals do two things that lenders care about, they set a valuation (one person’s opinion of value) and then determine if there is marketability for your property. I haven’t done any due diligence to find out if there really are no comps in the 5-10 acre range in your general vicinity (10 mile radius). If there are not, lenders are concerned about marketability of the property, given it’s larger than any other sales in the past year. Given the uniqueness of many properties in this country, one won’t always get true value in an appraisal (backward looking at three comps) and would only get true market value in a sale.