Living a slower pace of life is just one reason people choose to live in a rural area over a big city. Looking out your window and seeing land and trees instead of your neighbor’s house is another plus. Homes in rural areas tend to cost less than their urban counterparts, as well. Financing rural homes has its own set of challenges, however.
Establishing Value
Mortgage companies require an appraisal to establish the value of a home. Appraisers find homes similar to the subject property that have sold recently. Each appraisal must have at least three comparable sales from which the value is estimated. Typically, mortgage companies want to see three homes that have sold within 6 months of the appraisal and which are within one mile of the property. Rural property usually has fewer houses within one mile to draw from. Appraisers often have to exceed these guidelines to find comparable sales to use. This can make estimating the true value challenging.
Access
Lenders require year-round access to the property. Some rural property may not have paved roads to access the property. A road maintenance agreement may be required to ensure access to the home year-round. If the home is located in the mountains and is not regularly accessible during the winter due to snow, lenders may not approve a loan for the property.
Use
Most mortgage companies lend only on residential property. If you use your home as a farm or a ranch, you may have to find an agricultural lender or contact a local bank which has experience lending to farms. This doesn’t mean you cannot have a large garden or horses on your property. It only means you cannot make your living by using the land attached to your property and obtain a standard mortgage.
Utilities
Many rural properties do not have access to the standard utilities that urban and suburban homes do. Rural properties often have a well for water and a septic system for waste. Sometimes more than one home shares a single well, and this is acceptable as long as each house is guaranteed access. The lender may require an inspection or test of your well and septic systems. Other types of water such as drafting from a river, and hauled water (when potable water is put into tanks attached to the home) are also acceptable as long as it is customary for the area.
USDA Loans
The U.S. Department of Agriculture (USDA) offers rural development loans specifically for rural properties. The USDA created this program to encourage homeownership among low- and moderate-income families living in the rural areas of America. Each county has its own maximum loan limits based on the average cost of homes in that area. The homeowner’s income also cannot exceed 115 percent of the area’s median income to qualify.
References
About the Author
David Rouse, currently residing in Raleigh, N.C., has been writing and teaching home owners about the mortgage industry since 1997. Rouse has written training manuals for mortgage professionals and conducted informational first-time home-buyer seminars, providing make-sense answers for a long and confusing process. He studied at Western Kentucky University.
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