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Unusual homes make for unusual lending circumstances

Date posted:  4/22/14 11:15:00 AM Unusual homes are often more difficult to finance.

Some people just want to be different. From wearing outlandish styles of clothing to driving obscure automobiles, it seems standing out is a trend of its own. That even goes for homes, where some buyers are looking for a distinguished property to catch the eye of the neighborhood.

But purchasing an unusual home can be a bit more difficult than a prospective buyer might think, according to The New York Times. The problem starts and ends with financing because uncommon homes often contrast with the neighborhood, making it hard for an appraiser to give it a value. The Times reported appraisers tend to rely on properties of comparable size and style in a given neighborhood when giving a value, meaning a home that stands out has few peers to equate to.

While an appraiser won't damage a potential sale, a mortgage writer might be frustrated with the estimated value of a home when there aren't comparable homes in the surrounding area.

What makes a home unusual?
There can be a slew of reasons that a home is uncommon for a particular neighborhood. Peter Grabel, managing director of a private mortgage firm in Connecticut, told the Times that an unusual home might differ greatly from one region to the next.

"What's normal in Beverly Hills would be unusual in Brooklyn," Grabel told the Times.

Whereas bungalow and ranch-style homes are widely popular in states such as Kansas, South Dakota, Nebraska, Minnesota, Missouri and Illinois, they will be much less common in the Northeast, according to Zillow.

A construction company in the Northeastern states is more likely to break ground on a colonial or Cape Cod-style home, though that can differ from one region to the next. In states such as Connecticut, Massachusetts, New Hampshire and Pennsylvania, Victorian-style homes can be spotted more frequently than other Northeastern states.

Grabel also referred to older, spacious homes that reside in a neighborhood chock-full of newer, less expensive properties. This type of home is often referred to as a "white elephant," according to Grabel.

Be prepared to pay upfront
Tim Sickinger, a senior vice president of Atlantic Residential Mortgage, told the Times that buyers who are looking for an unusual home should understand they will likely be asked to put down a bigger down payment when trying to land a mortgage. Sickinger said if a lender is willing to finance an unusual home, they might "carve down pretty significantly what they're willing to lend."

Jason Auerbach, a divisional manager for First Choice Loan Services, agrees with Sickinger's assessment. Auerbach told the Times about a recent homebuyer who was searching for financial backing for two single-family homes on a single lot in the Hamptons.

Auerbach said his company backed the purchase, but it did so by limiting the risks of financing the unusual request. The buyer was forced to dole out a 35 percent down payment in order for Auerbach's company to finance the dual properties.

Another factor to consider
Who says size doesn't matter? According to Michael Vargas, president of the Vanderbilt Appraisal Company, the size of a property can make or break potential financial backing. Vargas told the Times some banks and financial institutions have a limit for how much acreage they will include in a home's value.

"Over five acres and they may start to get concerned about whether they're dealing with farmland or not a typical residential property," Vargas said.

Too small of a property might also hinder landing a mortgage. Vargas added many lenders have a minimum-square-footage requirement - about 600 square feet - when backing a property. That means homebuyers interested in purchasing a small studio might find it difficult to acquire a loan.