Before you buy that dream home, consider that someday you may want to either refinance it to get a better interest rate or maybe even sell it for a variety of reasons. That is the thinking man’s approach to purchasing real estate. Since at some point down the road you may be looking to get a loan, you should be aware of some things that can seriously erode your chances of getting a refinance loan or selling your home for a good price.
Before you buy that geodesic home you’ve just fallen in love with, you should consider a few things before pulling the trigger. Most major banks and brokerages will not lend to borrowers living in unique properties. By unique I mean anything that is not your basic floor plan or model that you see everywhere. If you live in an area populated with Victorian style homes, an ultra- modern circular home would be considered unique and a liability to the lender should they have to foreclose and resell the home. You will also have problems valuing the home because there no comparable houses anywhere nearby. If you live in an area where condos and duplexes are the norm, a Victorian house may be considered unique and you’ll find it extremely difficult to get a loan to buy and later refinance or sell it. Banks and other lenders look at everything from the perspective of mitigating as much risk as possible and lending on unique homes is a big risk.
It’s not just the house that can make a property unique. You may be moving to an area where everyone lives in a ranch style home on a couple acres. That’s great unless the home you’re interested in buying is sitting in the middle of twenty-five acres. In a case like this your lender may let you use comps farther away and older than 3-6 months in the case of a refinance loan later down the road. It is going to be very hard for an appraiser to bracket the home when using a value approach. He may be allowed to use a cost approach instead to get a value of your home. A cost approach basically determines how much it would cost to rebuild the home from the ground up and does not use comparable sales. Many appraisers use a combination of both approaches. If you’re unsure which method an appraiser is using, it will be detailed on the inspection report.
Off the Power Grid
If the home you are planning on purchasing happens to be powered by solar panels and wood stoves but every other house in the neighborhood uses power from the areas municipal power grid, your house is also unique. Getting a refinance loan will be extremely difficult and you will undoubtedly pay a much higher interest rate for the added risk your lender will be assuming. If everyone in your neighborhood uses electricity and natural gas but your home uses an oil stove and generators, your home is unique. On the other hand, if everyone in the neighborhood uses a wood stove to heat and so do you, your home would not be considered unique. To ensure you are buying a house that as the best resale value and the best purchase and refinance interest rate, buy a home that is similar to every other house in the area. If everybody gets their electricity from Kansas State Municipal Power District, make sure the house you buy does the same. If not your off the grid and it’s going to cost you.
Buying with an Eye on the Future
Before you buy that home consider that you may want to refinance it down the road or possibly sell it for any reason. If you’re buying with cash you won’t have to worry about the issue of unique properties, but if you have to sell your home or get a loan on it, there may be problems. It will be harder to sell because of the question of valuation. It will be harder to borrow on it because of it being a unique property. Whenever a bank or brokerage lends you money to purchase a home or refinance it, they have to think about what issues my pop up if the property is unique. If they have to foreclose on the home it will take much longer to resell the property. Banks who foreclose always want to get it off their books as fast as possible in order to lower their exposure to risk. Before you buy that ultra-modern Frank Lloyd Wright Jr. home consider what it will take to refinance or sell the home so you won’t have any unpleasant surprises down the road.
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