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 types.
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. 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.