We got some great feedback from our story last week so we decided to share a few clarifications and thrown another log on the fire. Financing is currently a steaming hot topic and I’m guessing, will be for some time. Today we’re going to go further down the path of financing on a private road. Our friends at Northway Bank sent over a few clarifications that should prove helpful for anyone thinking of buying or selling Jackson NH real estate situated on a road that is not maintained by the state or local municipality.
One of the biggest factors in nearly all of these conditions for financing is “who” is providing the financing. As most of you are aware, a very small percentage of loans actually stay with the bank they were initiated through. They are more commonly bundled together and sold into the secondary mortgage market. Because these larger corporations and investors are typically more gun-shy than your local bank would be, they tend to require a more stable situation with the property being sold. Because your local bank is more likely to consider all of the factors that you, as a person, bring to the table, your chances at getting a more creative solution to your financing are much greater.
The first place this comes to light brings us back to the issue of the road maintenance agreement. A local bank is more likely to not require a formal or recorded road maintenance agreement for what they call “portfolio lending”. These are mortgages that will remain with that particular bank for the life of the loan. Of course there are always exceptions. One example was with a property on a class IV town road where the “road” was literally a goat path and the homeowner could not get fire coverage because emergency vehicles could not pass to get to the house. Without insurance coverage (or more literally protection for their investment), the bank could not do the mortgage.
There are always exceptions to the rules. There are many different lending institutions and many varieties of those that play in the secondary mortgage market. Freddie Mac, Fannie Mae, VA, FHA and the list goes on. One of those exceptions is that Freddie Mac is one of the only of those larger institutions that will accept or buy mortgages that do not have a formal road maintenance agreement. Mostly all of the others still do.
How about if we move a bit closer to the actual structure on the lot? The question came up about the presence of a shared septic between multiple lots without any formal agreement. This issue can muddy the waters a bit. (Sorry, I couldn’t resist!) Because septic systems are governed by the Environmental Protection Agency, most local banks will not have a problem with financing either home. At the end of the day their position tends to be – if the state has approved the septic for use by both properties, who is the bank to come along and say it is unfit?
Once we step out to the larger investors, the rules change a bit. In general terms, the investors in the secondary mortgage market want to be sure that the specific property they are taking as collateral has all of the components to function independent of any other lot. In the case or the shared septic, it almost always comes down to which of the lots the actual septic system is located. We ran into a similar issue with my friends and their struggle last year. The septic is municipal but the houses up the road, including the one they wanted to buy, all have their sewer pipes running under the homeowner’s property at the beginning of the road. Since the “system” was essentially out of the control of the “upstream” properties, and there was no formal agreement in place, the investors were leery of getting involved.
It is safe to say that anytime a property cannot stand on its own with regard to services that make the property livable, the secondary market is going to shy away. I think you’ll have some flexibility with phone lines and likely cable television. But, when you start talking about shared water, septic, power and even driveways, you’re going to have better luck staying with a local bank that lends the money directly.
It is important, as buyers and sellers, to put ourselves in the shoes of an investor. If the entity you are investing in has the potential to be rendered “useless” or unlivable, you are more likely to move on to the next opportunity. When you are going to sell a home or looking to buy a home, take the time to assess the viability of your investment. If you find yourself explaining lots of little “hiccups”, it is likely time to take a step back and get those items cleared up. You will increase the salability of you home for all involved.