Mortgage question

What is the name of your state? Nebraska

I hope I am posting this message to the best forum. Our contract for our home is actually a combination of 2 different adjoining tracts of land. The largest one is about 16.5 acres, the 2nd (which the home is located on) is on about 2.5 acres. We just got word that Fannie Mae is not wanting to guarantee the loan due to the fact that it is actually 2 parcels of land. However, we are wanting to purchase this land because of the beautiful natural landscaping and potential for created landscaping options it holds. (My husband is a professional photographer)
We were told by our real estate agent that there are ways to overcome this obstacle such as a) writing 2 separate purchase agreements for the deal and paying a very small fee for the land purchase or b) attempt to get the legal descriptions rewritten into one description. We are wondering if there are any negative consequences before agreeing to either option. Can you help?
#1-Why would a mortgage company be so concerned?

#2-Is part of it that it is zoned AG? or growth potential?
Our community is really going through a growth spurt in that area of town. We are currently about 2 miles outside of the city limits, but expect that will change in the next 2-5 years.
#3-Are there any problems with getting insurance on the land if we purchase it at such a small price?
Thanks again in advance for any advice you can offer!
Kristi

[HomeGuru]

Originally posted by kaje
What is the name of your state? Nebraska

I hope I am posting this message to the best forum. Our contract for our home is actually a combination of 2 different adjoining tracts of land. The largest one is about 16.5 acres, the 2nd (which the home is located on) is on about 2.5 acres. We just got word that Fannie Mae is not wanting to guarantee the loan due to the fact that it is actually 2 parcels of land.

**A: that is because you have 2 legally separate lots of which one is vacant land. FNMA generally does not finance vacant land, only land with homes on it.
Either have the 2 lots consolidated into one or write 2 separate offers, (one on each lot and contingent on the purchase of the other) and obtain a FNMA loan for the homeland land a land loan for the 2nd lot.
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However, we are wanting to purchase this land because of the beautiful natural landscaping and potential for created landscaping options it holds. (My husband is a professional photographer)
We were told by our real estate agent that there are ways to overcome this obstacle such as a) writing 2 separate purchase agreements for the deal and paying a very small fee for the land purchase

**A: that would not overcome the FNMA issue. I suggest you talk to a mortgage broker rather than a Realtor.
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or b) attempt to get the legal descriptions rewritten into one description.

**A: impossible unless the 2 lots were legally consolidated into one.
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We are wondering if there are any negative consequences before agreeing to either option. Can you help?
#1-Why would a mortgage company be so concerned?

**A: because FNMA loans money for homeownership not vacant land ownership.
*********
#2-Is part of it that it is zoned AG? or growth potential?

**A: not really.
*******
Our community is really going through a growth spurt in that area of town. We are currently about 2 miles outside of the city limits, but expect that will change in the next 2-5 years.
#3-Are there any problems with getting insurance on the land if we purchase it at such a small price?
Thanks again in advance for any advice you can offer!
Kristi

**A: no, insurance for vacant land is not based on the sales price but on liability.

Thank you so much for your quick response and your very helpful answers! I really appreciate you taking time out to explain all of this in easy, understandable terms! You have definitely put my mind at ease!
Thank you again!
Kristi

[HomeGuru]

You are welcome Kristi.

[HUD-1]

Before attemting to consolidate the land, if you decide to go this route, check with your lender. Some secondary market insurers have a prohibition against "excess land". If you come in with a lot of 19 acres and the surrounding properties are on much smaller lots and the 19 acre lot is subdividable and capable of separate use, the lender may require you to separate them. As HomeGuru stated, residential lenders do not want to finance excess land and they do not want the servicing mess down the road if there ever is a partial release.

If you write separate contracts,the house with 2.5 acres will have to appraise out on its own. The idea of "transfering" the cost of the 16.5 acres to the lot with the house may not work, assuming the 16.5 acres has value.

HUD-1,
Thank you for the additional information. I do have an additional question for you. The 16.5 acres of additional land we are wanting is quite unique. If you can imagine a rectangle that is oriented so that the longest side falls on a N/S line, then I can describe where the unique features are located. The East boundary of the property borders a main N/S highway that is to be expanding from a 2 lane to a 4 lane road. Our property is only minimally going to be affected. There is a long wind and noise break of evergreens also bordering the East boundary of the property. The North side of the property also has a break of evergreens the entire length of the property. The West side is not accessible by a road, but their are 2 easements with neighbors to reach our property from the West and South. The West side of our property is a heavily wooded area at the far West side and as you travel East, you would encounter several very steep embankments. About 1/3 of the distance from W to E, you would encounter the small creek that runs through our property. It is oriented primarily N to S, but winds gently along the Western 1/3 of the property. It has 2 channels, but only one channel has water in it.
Now, if you divide the property in to halves so that you have a North 1/2 and a South 1/2, the house falls in the North 1/2, primarily in the North East corner. The driveway is on the south side of the house, and there is a small landscaped yard directly south of the driveway. The next area you would encounter is a large open "meadow-y" area as you travel south. Then finally, all along the southern border of our property is a black walnut orchard with trees of varying levels of maturity. The orchard is close to 7 acres of the land, but in an area where I think it would be very difficult to assign it to any other properties.
Sorry for the long description. Just thought it might help to have a visual aid! Anyway, in our opinion, the property is not currently in a state to where it is subdividable and capable of separate use. Our city requires that each lot in that area is at least 2 acres and must be set up with well and septic in order to be divided. You cannot break up the orchard, which is about 7 acres. There is enough room between the house and the orchard to put another home or building in between, but it is not set up with its own septic and well system and it would make our orchard almost inaccessible. The only area I can really see being an area that could possibly be subdivided is the West 1/3. However, it seems like the owners of the land behind us would like to keep it as open pasture, because there are many larger homes going up to the west on large lots, but none anywhere along the Western border of our property.
There is a home to the South of us that sits on a fairly large lot (probably 7-8 acres), one across the highway that has at least the same amount of land and several to the North that have 3-5 acre lots. There is a subdivision to the South, a subdivision to the North, one across the highway to the East and one about 1-2 miles to the West.
In our minds, the "excess land" definitely has value because of the orchard, but I'm not sure a lender would view it in the same light. Afterall, its trees- that can be damaged by Mother Nature, etc. We are planning to talk with our lender today to see if they can tell us what the home itself appraised at this week, so we have the value of the home. Our purchase agreement for both tracts of land was $250K. My father who is a farm/ranch realtor roughly figured the home to be worth $200-220K and the remaining 16.5 acres would be at a fair to moderate market price for the total to be $250K.
Any input you have would be great!
Thanks!
Kristi

[HUD-1]

I think that if it is physically possible to build a driveway from the East to the Southern portion of the property, clear trees, install a well and septic, then the Southern part of the land is capable of separate use. If it is unbuildable wetlands, then that is a different story. Developers have no qualms about clearing an orchard or moving fill if it is properly zoned and there is money to be made. Even if you can get one lot out of the 16.5 acres, then it is capable of separate use. It will be up to the appraiser to make this determination. Good Luck!

I really appreciate all replies to my questions from HUD-1 and Home Guru. Thank you! We actually combined the advice we received from both of you. We called our local lender and she was able to contact the underwriter to discuss the matter. The underwriter actually only requested a letter from our county assessor stating that it appears that the 2 parcels of land are contiguous and can be combined into one tax statement at our request. We went to the county assessor, discussed the matter and voila! We have a letter in hand! YEA!
Thank you for helping us with understanding all of our options and merely suggesting that talking to our lender might be the best possible way to find a solution!
Kristi
Another satisfied "poster"

[HomeGuru]

Way to go HUD-1.
Your check is in the mail.