Barn and Other Outbuildings on FHA Property

[Damon Pedersen]

Ok, I have a question regarding outbuildings on a property that they are trying to finance with FHA.
This property has six or seven outbuildings, all of which are well maintained and do not have any apparent peeling paint. I wish I could upload a couple more pics, one is a large typical acreage barn and the other is a detached garage and shed. These are what I consider to be farm buildings. The present owner has chickens, sheep, etc. and is using the barns and sheds for shelter, feed, hay, etc. One building was once used as a swine barn and it has typical mesh flooring with a shallow manure pit underneath. These type of outbuildings are common and are on similar comparable sales in this market. I thought FHA did not allow properties with "agricultural buildings" however I cannot find that right now anywhere for support. Maybe I am wrong. As I mentioned, the paint is fine and none have broken windows, even though some have places where windows once were that have since been replaced with boards.
I planned to reject the property for FHA financing based upon what I consider to be agriculural buildings. The lender asked what other options they have and I said I guess they could remove the buildings. This was the lender's response:

Hi Damon~
I spoke with our underwriter again and she has never heard of buildings needing to be removed from previous farm properties unless the buildings (do not) apply to the guidelines stated by FHA:

FHA guidelines require that a site be rejected if the property being appraised is subject to hazards, environmental contaminants, noxious odors, offensive sights or excessive noises to the point of endangering the physical imporvements or affecting the livability of its accupants. Rejection may also be appropriate if the future economic life of the property is shortened by obvious and compelling pressure to a higher use, making a long-term mortgage impractical.

FHA now permits an "as-is" appraisal for exsisting properties when minor property deficiencies that generally result from deferred maintenance and normal wear and tear, do not affect the safety of the occupants, or the security and soundness of the property.

Buildings required to be removed on an FHA file would be livable properties such as trailers, mobile or manufactured homes
--End of lender email--

So, I understand where they are coming from that these items do not affect the safety of the occupants, etc. But, I still have a problem signing off on a property with all these buildings. Can anyone give me their opinion or provide supporting documentation from the handbook?

Thanks much!
Damon

 

[Couch Potato]

Residential?

3. Non-Residential Use Design Limitations

A qualified property must be predominantly residential in use and appearance. Any nonresidential use of the property must be subordinate to its residential use, character and appearance. A property, any portion of which is designed or used for nonresidential purposes, is eligible only if the type or extent of the nonresidential use does not impair and/or remove the property's residential character and appearance.

I would say you just need to be sure to put an adequate description of the property in the report and let HUD make the call on it being "residential" or not residential.

 

[Mike Garrett RAA]

I concur....we have lots of properties out here that are on from 5 to 40 acres but are still considered residential even though there are substantial outbuildings. These are often refereed to as "horse properties" or "hobby farms/ranch". One way to make the determination is....does the property produce income? If not, then it most likely is residential in nature regardless of the zoning.

Report what you see. Use comparables that are most similar. Adjust for the outbuildings, if necessary. Let the underwriter sort it out.

Good luck

 

[Don Clark]

I agree with Greg & Mike. Have done several for FHA that are similar to what you photos show.