Understanding Fannie Mae
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The information on this page is intended to help you become an educated buyer. Always talk to your lender of choice about the type of property you'd like to purchase and let them help you decide what type of loan would be best for you. A good loan originator will be well-educated as to the properties they can and cannot help you finance. You'll be able to ask the right questions and avoid the headache of applying for a loan just to have the property turned down at the last minute because it didn't conform.
After reading the guidelines below, you'll see that HORSE FACILITIES AND LARGE FARMS can sometimes be a problem to finance through a mortgage company. Due to the nature of the property, excess acreage and/or large, valuable outbuildings, mortgages on these types of properties can require specialized loans or portfolio loans through local banks. Understanding the process and the limitations placed on your lender by the secondary mortgage market will help you decide how and where to secure financing for the farm. |  |
A conventional lender might not see the value in items such as 10 stall barn or large greenhouses on the property. A conventional appraiser might value these at a third or less of what it cost to replace them as that is sometimes all its “worth” to the lender’s investors based on FNMA's Guidelines. We all know how valuable those buildings can be but might not matter to the bank. What you need to know is that most home mortgages are sold to investors on the secondary market. These sales generate new funds for the next round of buyers, and so on. You also must understand the “behind the scenes” restrictions FNMA Guidelines place on conventional lenders. BEFORE YOU MAKE A MORTGAGE APPLICATION ANYWHERE, DISCUSS THE TYPE OF PROPERTY YOU WANT TO BUY WITH THE LOAN OFFICER FIRST!
Below you'll find excerpts from the actual FNMA Appraisal Guideline Manual that dictates what types of properties most mortgage companies can lend on and how their appraisers must view the property.
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FNMA APPRAISAL GUIDELINES, Federal National Mortgage Association Real Estate Appraisal Guidelines.
Taken from XI, 403.01: Location (06/30/02) [Page : 1146 06/30/02]
We will purchase or securitize mortgages that are secured by residential properties in urban, suburban, or rural areas. An "urban" location relates to a city, a "suburban" location relates to the area adjacent to a city, and a "rural" location relates to the country or anything beyond the suburban area. We do not designate certain areas as being acceptable or unacceptable. To be eligible for purchase or securitization, a mortgage must be secured by a property that is residential in nature -- based on the characteristics of the subject property, zoning, and the present land use. We do not purchase or securitize mortgages on agricultural-type properties (such as farms, orchards, or ranches), on undeveloped land, or on land development-type properties.
The appraiser and the lender's underwriter must be sensitive to the varying conditions that characterize different types of locations. The appraiser must also consider the present or anticipated use of any adjoining property that may adversely affect the value or marketability of the subject property. Conditions that are typical of certain types of locations may not be present in other locales. This does not mean that the conditions are unacceptable, rather that they must be viewed in context with the nature of the area in which the security property is located. A few examples to illustrate this are shown below:
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• If the subject property is located in a rural area that is relatively undeveloped or one in which properties often have large lot sizes, the appraiser may have to go a considerable distance to find properties that can be used to develop an opinion of value for the subject property.
• If the subject property is located in a suburban or urban area, the appraiser will most likely use comparable properties in the immediate vicinity of the property since suburban and urban areas are usually more highly developed and comparable sales typically are available in the subject neighborhood. However, if the property is located in an area in which there is a shortage of recent truly comparable sales -- either because of the nature of the improvements of the subject property or the relatively low number of sales transactions in the neighborhood -- the appraiser might need to analyze and use as comparable sales properties that are not truly comparable to the subject property. This is acceptable as long as the appraiser adequately documents his or her analysis in the appraisal report and explains why such comparables are being used.
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• If the subject property is located in an urban neighborhood that has vacant or boarded up properties, the appraiser will need to look at comparable properties in the same neighborhood to assure that any effect of the vacant or boarded up properties is taken into consideration in developing the opinion of value for the subject property.
A lender must give properties with outbuildings special consideration in the underwriting and appraisal review. Properties with minimal outbuildings -- [Page : 1147 06/30/02] such as a small barn or stable -- that are of relatively insignificant value in relation to the total appraised value of the subject property are acceptable if they are typical of other residential properties in the subject area. For example, a property that has a small barn or stable is acceptable if the appraiser demonstrates through the use of comparable sales with similar improvements that the improvements are typical of properties for which an active, viable residential market exists. If the outbuildings do not represent typical residential improvements for the location and property type, the typical purchaser in the market would probably recognize minimal, if any, contributory value for them. A property with an atypical minimal outbuilding is acceptable to us, as long as the appraiser's analysis reflects little (or no) contributory value for it.
On the other hand, the presence of significant outbuildings -- such as a large barn, a storage area or facilities for farm-type animals, or a silo -- will probably indicate that the property is agricultural in nature. In such cases, the lender must review the property appraisal to determine whether the improvements are residential or agricultural in nature, regardless of whether the appraiser assigns any value to the outbuildings.
All properties must be readily accessible by roads that meet local standards. |
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