Land to Improvement Value Ratios

[Walt Kazmierczak]

High site/improvement ratio should not be a problem if it is fully supported and the UW understands the market area. Just finished an average quality 1961 era 1,500 s.f. stick built tract home in Orange County (CA), appraised at $350,000! Five great comps within 35 s.f, same age, less than 1/2 mile! Tough assignment
Walt

 

[Will Granger]

As the others have said, explanation with whatever the ratio is. Usually above 50% is a red flag w/o verbiage. 8)

 

[bradellis]

Hiya folks,

I'll give the skinny straight from Fannie:

They do not care much any more about the ratios so long as it is typical for the area. Not uncommon, for example, in high value areas in Chicago, New York, LA, etc. to see land worth 60-90% of the total.

Many many years ago, Fannie was concerned about this due to the federal charter they work under which prohibits land loans. They had made a determination that, if land exceeded improvements, it was a land loan, and therefore, prohibited by charter. NOT the case anymore.

However, it is always a good idea to include a comment about the ratio. Takes no time and avoids the underwriter who thinks he/she knows everything.

For our friend who talks about the 5 acres- it was never the lender who cared. It was because they could not sell their loan to Fannie or to other secondary market buyers who followed Fannie guidelines. If the lender can sell the laon, expecially with no recourse, why would they care?

Now Fannie does not care either. You just use comps with similar sized lots. If you truly want confirmation, call Fannie.

Brad Ellis, IFA