With a name like “the mushroom house,” it was one of the toughest sales of her career as a real estate broker Dayna Murray of Keller Williams Premier Realty in Minnesota. Trying to find the right buyer for this very non-traditional home a few years ago took so much extra time and effort. She could have sold it many times over, but no one could get a loan to pay for it because it was so unusual.
This futuristic, ensculptic home in Minnetrista, Minn., had been made of chicken wire, burlap and polyurethane and features curved walls with round windows. Plenty of people were interested. But she needed someone who could pay cash because lenders were not about to hand over any money for this eccentric house.
“With most funky houses, you aren’t going to get a loan,” Murray said. “There are some investors who will loan you money at a higher interest rate, and they would get the house as collateral.”
But she learned through experience that if buyers want the unusual, the unconventional and the non-traditional house to live in then, they probably better come up with the money themselves.
“I talked with many lenders about this house, and all of them said they would absolutely never write a loan for it,” she said.
She did eventually sell this home that had been built in 1969 with many environmentally-conscience features and many features conducive to entertaining. The new owners were a retired couple from Washington, D.C., who wanted a project and had the cash.
“It was the longest listing I’ve ever had. It sat on the market 230 days, and I did a lot of marketing on it. Plus I got calls from all over the world on it and could have sold it a hundred times over, but no one could get a loan,” she said.
Lenders see unconventional homes as big liabilities.
“It’s a little more difficult to do an appraisal when there is nothing similar nearby,” said Walter Molony, economic issues media manager in the public affairs department at the National Association of Realtors in Washington, D.C. “An assessor can look at what is the value of the land that the property is sitting on. That could be more readily available than the structure.”
But lenders are also looking at the marketability of a home.
“If you defaulted on the mortgage, then the lender has to look at how difficult it would be to sell it. That’s hard for lenders to wrap their head around when it’s so unusual,” he said.
There are some very unusual homes out designed from churches, houseboats, firehouses, silos and barns, or constructed from unusual materials.
“A normal home in most areas would be a three-bedroom, two-bath house. Lenders like things that they can find recent comparable sales to, and that would be almost impossible with some unusual homes,” he said.
If you are considering owning one of these creative homes, you should really look at your long-term plans in regards to the home, said Ryan VanDaele, real estate agent for Ruhl & Ruhl Realtors in Davenport, Iowa, and former registered financial advisor.
“Are you planning on living there one year, five years, 10 years or the rest of your life? The answer will help you determine whether or not this home is a good decision,” he said.
If you are looking at only owning the home for 1-5 years, it will probably not be a wise choice for purchase mainly because of the time it could potentially take to sell the home when needed.
“Unique homes negate a large portion of the market. So you could get lucky and have it move quickly. But for the most unique properties, it could take six months to six years to sell,” VanDaele said.
In his Midwest area, an unusual home would be anything with a strange geometric shape to it or commercial conversions such as churches or school houses and some log homes.
“If you do have your heart set on an unusual property, you best bet would be to find a local lender with in-house lending. That’s about the only way to go,” he said.
He believes it’s very important to help inform buyers about the pros and cons of owning an unusual home. It’s even more important to explain to the sellers of these properties that although the chances of selling look good in that particular area, those stats don’t take into account that you have an unusual or unique property.
“If it sells quickly, then great. But be ready for the long haul,” he said. “Usually you can cure anything with pricing. But for unique properties, you would be attempting to solve this problem for a minute section of the buying market. That’s very hard to accurately predict.”
Ask a mortgage pro whether the property you are considering will be eligible for financing.