Hobby farm?

[lturner908]

m2:Iowa property, 10 acres, FHA, house is majority of site/overall value, but current owner has approx. 8 acres of corn/soybeans planted. OLD FHA guide allowed "hobby farms" as long as the primary income of borrower was not derived from farming income. That applies here; I know it needs to be addressed but what is the proper way to handle this???

 

[Terrel L. Shields]

Just state it...cash rents might be $100 an acre so total income potential of the surplus land is only $800 or so right? A fraction of the value.

 

[Rufus]

OLD FHA guide allowed "hobby farms" as long as the primary income of borrower was not derived from farming income.

You are, of course, refering to this from the old 4150 manual:

(4-16) Many people prefer outlying locations for the purpose of raising horses or having a small hobby farm. Provided that the use of the property such as raising horses or farming does not constitute the primary income of the occupants, such locations are usually acceptable under Section 203(b) rather than 203(i). Such sites may be ten acres or more but are still considered in relation to the typical size lots in the area.

This is not mentioned in 4150.2 nor the subsequent mortgagee letters. Is this a case were the old information is still valid without a specific reference to the contrary? BTW, the referenced section 203(i), Farm homes on 5 or more acres, is obsolete per Appendix V posted on the HUD Clips site 12/28/2007.

 

[lturner908]

Right, since this is a 203(b) deal, and is not in the 4155 rev 5 has no mention of farming activity, acreages etc. So do you think if they did not retract the statement it would still be valid? I don't think underwriters are usually that intuitive, unfortunately. So would you approach it as Terrel's post (the first reply) and use a rent value/acre and clarify the primary use and value of the property is residential?

You are, of course, refering to this from the old 4150 manual:

This is not mentioned in 4150.2 nor the subsequent mortgagee letters. Is this a case were the old information is still valid without a specific reference to the contrary? BTW, the referenced section 203(i), Farm homes on 5 or more acres, is obsolete per Appendix V posted on the HUD Clips site 12/28/2007.

 

[Rufus]

So would you approach it as Terrel's post (the first reply) and use a rent value/acre and clarify the primary use and value of the property is residential?

My first step, as you've done, would be to ask the question here. My first and only experience (in ten years) with a similar situation was a five acre parcel subject to crop rights. The owners did not farm it themselves. Also, it was a convential refi. Here's what I wrote after getting help from others on these forums:

Approximately 2.5 acres at the rear of the subject parcel is crop land. This is not farmed by the owner but is rented on a year to year basis to the owner of the parcel to the north. The appraiser has researched the influence attributable to the crop rights of the subject property and has determined they are minimal at best. The local Broker's Listing Cooperative (multiple listing service of central Indiana) has data for twelve counties with full records back to January, 2000. Via the MLS in the past eight years, there have been a total of twelve properties sold with ten or less acres listed as subject to crop rights. Conversations with the real estate agents for the most recent 25% of these sales indicate no effect, positive or negative, for the presence of crop rights. Additionally, comments from four certified residential appraisers and one certified general appraiser also indicate no significant impact on value due to the crop rights.

If I were appraising your property, I would be inclined to call HUD for specific guidence in addition to reading the replies obtained here. However, my gut feeling is that it should be considered residential because an eight acre farm is simply not going to produce major profits and, as you've noted, it was fine per the 4150 guidelines.

 

[Michigan CG]

m2:Iowa property, 8 acres, FHA, house is majority of site/overall value, but current owner has approx. 8 acres of corn/soybeans planted. OLD FHA guide allowed "hobby farms" as long as the primary income of borrower was not derived from farming income. That applies here; I know it needs to be addressed but what is the proper way to handle this???

Linda, I just moved out of the Great state of Iowa after living there for 20 years. 10 acres is truly a hobby farm, if it has corn (hovering around $7/Bu) or soybeans (hovering around $15/bu) in a high production area (220-230 bu/ac -- corn) they are getting upwards of $175 rent/acre. But $1,400 income hardly makes a difference in value of the overall property.

It is hardly worth starting up the $300,000 John Deere tractor to pick those 8 acres.

 

[lturner908]

Thanks Timothy. I feel much more comfortable now. A call to HUD may be still in the cards, but I do thank everyone for the terrific insight. I just couldn't see how it could be a deal-breaker, but also can't pretend it's not there!! :new_smile-l:

Linda, I just moved out of the Great state of Iowa after living there for 20 years. 10 acres is truly a hobby farm, if it has corn (hovering around $7/Bu) or soybeans (hovering around $15/bu) in a high production area (220-230 bu/ac -- corn) they are getting upwards of $175 rent/acre. But $1,400 income hardly makes a difference in value of the overall property.

It is hardly worth starting up the $300,000 John Deere tractor to pick those 8 acres.