With all of the “deals” we are hearing about these days, I guess it’s not surprising that people are finding homes with large tracts of land associated with them. In general, the ratio of “land value” versus “home value” needs to be less than 30%. This goes for FHA loans, VA loans – Conventional loans, USDA Loans… underwriters are going to look at the appraisal, and if the land is worth more than 1/3 of the total sales price, it won’t work for our Bank.
The Bank takes the position that if the total Sales price is $100,000 and the value of the 2 bedroom, 2 bath house on that property is less than $70,000 – they are essentially making a land loan, not a “home” loan (which is what we do).
Sometimes you can find out from a Real Estate Agent what the Land is valued at and quickly do the calculations on your own.
Recently, USDA came out with a ruling that states the following:
The amount of land associated with the residential purchase is limited by 7 CFR 1980.313(d) which indicates”Generally, the value of the site must not exceed 30 percent of the total value of the property.” If the site exceeds 30 percent of the total value of the property, two additional tests must be met to ensure the property is eligible: 1) the value of the site must be typical for the area, as evidenced by the appraisal; 2) the parcel cannot be subdivided into two or more sites. The additional tests are applicable when the site value exceeds 30 percent of the total value of the property. The regulation does not support imposing limitations on the area of land associated with the dwelling purchase. State Offices cannot impose arbitrary acreage limitations, such as 2 acres, 10 acres, 15 acres, etc.
If you have your heart set on a small house sitting on 20 acres of land, this might seem promising – but don’t be fooled! The value of the site MUST BE TYPICAL for the area. We don’t have many “neighborhoods” in NC where all of the recent sales (in the last 6 months) were small houses on LARGE expensive lots. Further, USDA says that the Parcel cannot be subdivided into 2 or more sites – to get around one tract that has too much land associated with it.
USDA is a great program, and it’s probably the BEST program for a home that is NOT an income producing home. If you have questions about buying a home in NC, and you think it will qualify for USDA Financing – call Steve and Eleanor Thorne 919 649 5058 – we know USDA loans, and we know the guidelines!