In December 2008 I completed the sale of a property in which the buyer had used USDA-Rural Development financing.Â Everything went smoothly and the staff at RD was very responsive.Â As I recall the waterÂ quality test was the only extra requirement.Â This is a terrific program for buyers who qualify.Â However, sellers who have property thatÂ may fit theÂ requirements of buyers using RD financing willÂ want to know about this.Â
When another listing of mine went under agreement with RD financing in March, the buyers' agent and I were surprised by the number of new requirements that we encountered.Â This note is not a criticism of the RD program or the staff at RD who turned inÂ the same responsive effort that we have come to expect.Â However, there was a long list for the scavenger hunt to keep the transaction together.Â The majorÂ new requirements were forÂ code enforcement inspections (electrical, plumbing, fuel burning appliances) and a certificate of occupancy.Â Since many of theÂ towns in NH where buyers can find affordable properties do notÂ doÂ code enforcement inspectionsÂ and do not issue certificates of occupancy, this mayÂ disrupt your transaction. We were able to deal with this, but a brand new home might run into more challenges.Â Another factor is that most towns update their assessments on roughly an annual cycle and will have flagged a number of properties to be visited by the assessor in the coming year.Â If the property is assessed as land only and thereÂ noÂ building shown on the assessment, that canÂ cause a problem in RD underwriting as well.Â The town may not want to incur special charges for an out of cycleÂ visit by the assessor.Â Â Â
An earlier post of mine discussed sales of undeveloped land with recreational and conservation features.Â A crucial factor for sellers to keep in mind with such properties, and buyers would do well to consider as well, is that financing secured by such properties may not be possible or if mortgage financing is available the terms may be onerous.
For qualified borrowers, land loans are available at about 20% down for 20 years from most lenders.Â However, the general criteria for lending on these terms will include evidence that the property is buildable based on soil tests for a septic systemÂ and compliance with town rules and state regulations.Â This will apply to the loan whether or not the buyer intends to build a permanent structure.Â Soil testing can be performedÂ just about anywhere so that is not a limitation.Â However, town rules mayÂ affect the use of the property.Â For example, can the property be developed in compliance with zoning ordinance setbacks.Â Note that some towns also have additionalÂ tough standardsÂ tucked awayÂ in their subdivision regulations regarding setbacks from wetlands and watercourses.Â Finally, towns have different approaches toÂ allowingÂ construction on private roads and Class VI roads.Â Some towns will allow development if the owner executes a waiver, but other towns prohibit permanent structures on Class VI roads.Â Land with such restrictions will not qualify for typical financing.Â Finally, state regulations may affect development of the property.Â The NH Comprehensive Shoreland Protection Act sets rules for development on lakes and ponds of 10 or more acres well as on a list of so-called fourth order streams.Â It is onÂ these streams where additional rules may apply to recreational properties and the lender may require state permits as well as town approvals to demonstrate that a property is indeed buildable.
If a property is not buildable, the list of secured financing options gets very short and very expensive.Â While underwritingÂ standards change almost daily, in a recent case we found only one local savings institution out of a halfÂ dozen contacted that was willing to lend on unbuildable property.Â The terms were 65% loan to value (e.g. 35%+ down) and a maximum term of 10 years in a selection of adjustable rate mortgages.Â Closing costs started at $2,200 plus 0.75% (3/4 of one percent)Â stateÂ transfer tax to the buyer based on the contract selling price.Â
Sellers ofÂ recreational property need to understand how financing may affect marketability of their property.Â For buyers the best option may be to shop for recreational land with an equity line of credit on their primary residence to supplement any available cash resources.Â Given the lower appraisals that homes are receiving today, sellers need to keep in mind that buyers' budget limitations are real.Â Pricing within 5% to 7% of fair market value is crucial to ensure a sale.Â Best Regards,Â Chuck Braxton, REALTORÂ® GRI