Financing a Log Cabin or Other Unique Property

Question:

Will Fannie Mae or Freddie Mac allow a log cabin? If so, what are the requirements?

Answer:

Yes, this can be found under the topic of Unique Properties. That doesn’t mean a lender will always allow it due to having their own overlays, but both Fannie and Freddie support unique properties, with much of the burden on supporting market value falling to the shoulders of the appraiser.

Here are the general guidelines for Unique Properties:

• Appraisal Requirements: For unique properties like log homes, appraisers must consider how these homes fit within the market. If a property’s design or construction (like a log home) deviates significantly from typical homes in the area, the appraiser needs to justify its value through comparable sales or other market data. This might involve looking beyond local comparables if necessary, ensuring that the appraisal reflects market acceptance and value.
• Highest and Best Use: The appraiser determines if the existing use of the property (e.g., a log home) contributes to its value more than if the land were vacant. This involves assessing whether the log home’s style and construction are typical or desirable in the market.
• Environmental and Zoning Considerations: If the property has unique features or is in a special zoning area (like flood zones or areas with environmental hazards), these must be addressed in the appraisal. The impact of these factors on the property’s value and marketability should be clearly documented.
• Market Resistance: If there’s market resistance due to the property’s uniqueness (like a log home in an area dominated by conventional homes), this should be reflected in the appraisal. The appraiser might need to explain how such resistance affects value.
• Non-Conforming Uses: If a property like a log home represents a non-conforming use of land, the appraisal must reflect any adverse effects on value or marketability due to this non-conformity.
• Documentation and Photos: For properties with unique features, documentation might include photos of specific elements to verify construction and compliance with local building standards.
• Valuation Challenges: Unique properties might require appraisers to think creatively about comparable sales, possibly extending the search beyond immediate locales or considering time-adjusted sales if current comparables are scarce.

• Legal and Structural Integrity: For properties with additions or unique construction, any issues with permits or structural integrity must be noted, assessing their impact on value.

Finding suitable comparables:

• Local Market Search: Appraisers first look for sales of log homes within the same local market. The closer the comps are in terms of location, the better, as they reflect local market conditions.
• Adjustments for Differences: Since finding exact matches might be difficult, appraisers make adjustments for differences in size, age, condition, amenities, and other features. For log homes, adjustments might include:

• Construction Type: Adjustments for the type of log construction (hand-hewn, milled, etc.) and its condition.

Age and Wear: Log homes might age differently than traditional homes, potentially affecting value.
Amenities and Features: Unique features like fireplaces, large land parcels, or rustic amenities might need adjustments.
Expanding the Search: If local comps are scarce, appraisers might expand the search radius, possibly even looking at different counties or states if the log home style is more prevalent elsewhere.