Real estate issues

**jmur5074** · 03-05-10, 08:56 PM

So I recently accepted an offer of my house and have two houses I'm looking at purchasing with my fiance and have run into some issues. I'm curious if anyone here knows of a way to work around it.

I'm looking for a hobby farm, and want to move back to the area where I grew up. I've found two places. One is on the high end and would be a fairly steep mortgage payment (manageable, but steep). It also has the buildings I need for my hobby farm, but nothing else.

The second one is a much better price, and really the house is just as nice but would need some upgrades I could handle doing. Also, it's got plenty of outbuildings for my hobby farm plans, in addition to most of what I'd need for some animals (feeders, fencing, etc). Basically all it's missing is the animals.

My problem is at the bank. My banker told me tonight that because the second property has two silos (that are inoperable) it would be appraised as an "agricultural" property, which means there would be ZERO chance of getting a conventional fixed rate loan from a lender. The only loan I could get is an in house balloon rate (variable rate) loan starting at 6%. Our current conventional fixed rate loans are at 4.875%.

She said it doesn't matter if it's assessed as a residential property, listed in the MLS as residential, or if the silo's are inoperable. It also doesn't matter how much we put down, or how much we pay on the property. She also said the huge RED BARN isn't enough to consider is agricultural, because it could be used as a storage building. But "nothing screams agricultural more than a silo"...or so I'm told.

She said the only way I can get a fixed rate conventional loan is if the silos are torn down by the seller.

Has anyone ever heard of anything like this? If you have, any idea how to get around it? I've really got my heart set on the second property but there's no way I can take a chance on a variable rate loan. My realtor is going to speak to a different lender who is a friend of hers to see if we can find some other way around it. Anyway, any help would be appreciated.

**Jenna** · 03-05-10, 09:29 PM

I never heard of anything like this. But you could try to get the silos torn down by the seller as part of the negotiations. Maybe you can offer to pay for the tearing down of the silos as part of your offer price. Due to the financial crisis and the Federal Reserve's efforts to keep interests rates artificially low, the fixed rate is the lowest it's ever been and probably as low as it ever will be, and will save you a lot of money in the long run; rising US federal government deficits mean that mortgage rates are likely to rise a lot in the future, so it is not a good idea to take a chance on a variable rate loan. Good luck.

**jmur5074** · 03-05-10, 09:38 PM

Well I just spoke with my realtor who said her friend, who works for a mortgage company, has never heard of any issues like that and doesn't see why we can't buy the property just because there's two silo's on it. I also just realized tonigth that my uncle bought a defunct farm just before christmas last year. It's got a big red barn, pole sheds, several dozen acres of tillable land, fences for animals, etc, etc...and yes, A BIG SILO. He bought the property in the same county this hobby farm I'm looking at is in. So....there's gotta be a loophole somewhere.

I am guessing it's an issue specific to the bank I was planning on using. Due to their stellar customer service in the past I'd devoted my mortgage business to them for life, regardless of anyone else's rates. But now I'm willing to look elsewhere for the loan I need.

**Jenna** · 03-05-10, 09:41 PM

Good idea about shopping around; different banks have different policies. You can look up mortgage rates offered by different banks for your area here: Mortgage Rates Credit Cards Refinance Home CD Rates by Bankrate.com

Good luck.

**NC Bullseye** · 03-05-10, 10:45 PM

That's strange but could you stick a faucet on the side of them and call them rain water collection cisterns?

You might want to ask what level of demolition would be required? Maybe just the roofs removed or something minor.

**Jim1348** · 03-05-10, 11:30 PM

I also agree about shopping around. Although this is switching gears from banking to insurance, bear with me for a moment. I, too, have a hobby farm. It is only five acres, but it is in the metro area. Several years back I was looking at insurance coverage for my hobby farm to see if I could do better than what I have/had. I called several different insurance companies, but as soon as they heard that I had horses, they told me that they wouldn't insure me. I was dumbfounded. Needless to say, I stayed with the carrier that I already have, but the others weren't even interested in quoting me a rate! I still am not sure if those same companies would cover me if my property were outside of the metro area or what the issue was, but they were absolutely uninterested in even talking to me. (I didn't even mention that we have an in ground swimming pool and a trampoline!) Has anybody else here ran into this?

**jmur5074** · 03-05-10, 11:53 PM

Homeowners or farmers insurance?

I would imagine they're anticipating guests (or maybe customers) would be riding your horses. But that seems like kind of a stretch.

**pharmer** · 03-05-10, 11:56 PM

I don't know a lot about real estate, but enough to know that there is always somebody else out there to get a loan from, so looking elsewhere is a good idea. Prob don't have to tell you, but NEVER go with variable rate. Also, I don't know about up that way, but down here there are lenders that specialize in rural land and farm/agricultural loans so if nothing else, see if you can find one in your area. Also, somehow working in the demolition as part of the deal wouldn't be a bad alternative... and see what your uncle did haha GOOD LUCK to ya!

**jmur5074** · 03-06-10, 02:57 AM

Originally Posted by pharmer

Prob don't have to tell you, but NEVER go with variable rate.

Yep, absolutely not. I don't claim to be smart, but I know better than that.

**Jim1348** · 03-06-10, 10:04 AM

As a matter of fact it is called Illinois Farmers Insurance that covers the home and farmstead. I suppose that there might be more claims with people owning horses inc certain ZIP codes. I suppose that is any in the seven county metro area, but I became frustrated after several telephone calls and getting the same thing. I am kind of a tight wad when it comes to spending for certain things and every so often I get on the kick of shaving costs. In fact, in addition to refinacing my mortgage for a better rate several years back, I Also called the credit union where my wife's van is financed through. They had a better rate and the $25 "fee" to re-finance through them was recouped in savings the first month. My neighbor found a better rate for garbage service in our area, so I called my existing provider and they cut my rate!

Originally Posted by jmur5074

Homeowners or farmers insurance?

I would imagine they're anticipating guests (or maybe customers) would be riding your horses. But that seems like kind of a stretch.

**ms1600** · 03-08-10, 03:28 PM

Have you consulted with an attorney that specializes in real estate? They may be able to work with your banker to work out some of the differences regarding the silos.

**ChesCopPodz** · 03-08-10, 04:41 PM

Have you asked mortgage compainies? They'd be able to tell you better than the realtor whether or not they'll give you a conventional loan.

**jmur5074** · 03-08-10, 06:25 PM

There was a home and building show in town this weekend so we stopped by to see who was there.

I located an agricultural mortgage service who specializes in rural development, hobby farms, rural building, etc, etc and spoke with them.

He said he can give us a conventional 5% fixed rate loan. He said once the property is appraised though, if the appraiser feels it's "too agricultural" as in, you can earn an income off of the property by farming (which with this place, I really don't think you can) the loan would be a conventional 6.875% fixed rate "portfolio" loan...basically a business loan.

At the moment this seems like our front runner. Every bank and one credit union I've spoken to has told me "NO."

This place has plenty of outbuildings and a couple silos and what not...on the surface it looks like a farm. BUT, it's only five acres, with no tillable land. The guy from the mortgage company said it's "unlikely" (but still possible) that an appraiser would say it's "too agricultural" because on that small of a parcel of land it would be almost impossible to actually turn a profit or make a business out of the property.

**ChesCopPodz** · 03-08-10, 08:07 PM

All that on 5 acres? Sounds crowded.

**jmur5074** · 03-08-10, 08:19 PM

Originally Posted by ChesCopPodz

All that on 5 acres? Sounds crowded.

Sounds crowded, but it's not. There's actually more "yard" than expected.

**pharmer** · 03-08-10, 11:43 PM

Originally Posted by jmur5074

I located an agricultural mortgage service who specializes in rural development, hobby farms, rural building, etc, etc and spoke with them.

Well how 'bout that!

haha Good deal!

**Ender** · 03-10-10, 10:18 PM

Originally Posted by jmur5074

I am guessing it's an issue specific to the bank I was planning on using. Due to their stellar customer service in the past I'd devoted my mortgage business to them for life, regardless of anyone else's rates. But now I'm willing to look elsewhere for the loan I need.

Don't get hooked on a bank, a realtor, or a property.

The worst thing I did when house shopping was let my (relative) realtor hook me in. She trashed every house I looked at as 'unbuyable,' for some reason...whether it was the price, the loan, the FHA requirements, etc etc.

Then she broke off with me because I wasn't being serious enough (i.e. making big enough offers!!!). Literally 2 days after she gave me the boot, I bought a house that "wouldn't pass FHA requirements, and was worth more than I offered." Long and short, I bought it EASILY through the selling realtor, and for 10k less than I thought.

So...if your realtor is nay-saying you, go to the selling realtor, or find out from the bank--or a different bank, what the deal is. Cities change property zoning type stuff all the time, and banks are usually competitive even in a bad market, right?

**wprebeck** · 03-11-10, 09:22 PM

I purchased my acreage (154) thru Farm Credit Services. Got a good interest rate with them, too - lower than that of my actual home. I bought the land to retire to, and eventually build on. It would appear FCS has locations in MN, check out Farm Credit Services for more info them.

I've had them for 2.5 years, and like them. Check them out, and see what you think. It's a 30 year mortgage, BTW, with a penalty for paying it off in the first five years. That's how I got a lower interest rate, and honestly...if I could pay it off in the first five years, it's because I hit the lottery, and won't care about the penalty.