Thursday, October 16, 2014

Can You Purchase a Kentucky Property with a barn on it using the USDA Rural Housing Loan Program?

Here is what the guidelines say when buying a Kentucky property with a barn on it using KY RHS 502 Guarantee Loan Program:

You must get a "barn-waiver" to do the loan. The appraiser must put a value on the barn, and then deduct the value of the barn from the total appraised value of the property.

For example, let's say you were buying a home with a barn on it and some small acreage, with a sales price of $150,000.00. The appraiser delivers the appraisal back to the USDA underwriter and it appraises for $150,000, the sales price. Good news, right? Actually no!

The underwriter notices that there is a barn on the appraisal and he/she calls the appraiser and tells them to put a value on the barn, and then deduct that from the appraisal's final value. The appraiser values the barn at $20,000, so the final appraised value is $130,000; $20,000 short of the sales price. Ouch, not good right!

Now the buyer must come up with the $20k difference between the sales price and appraised value, or the seller must lower the sales price of $150,000 to $130,000, a loss of $20k for the seller.

You can see this can kill a purchase transaction in a second, and cause a lot of heartache and final losses for all parties involved.

Please be aware of this the next time you are purchasing a Kentucky rural housing property and your financing is USDA Guarantee Loan.


Joel Lobb
Senior  Loan Officer

American Mortgage Solutions, Inc.
800 Stone Creek Pkwy, Ste 7,
Louisville, KY 40223

 phone: (502) 905-3708
 Fax:     (502) 327-9119

 Company ID #1364 | MB73346

A list of acceptable different types of outbuildings approved for the Kentucky USDA Rural Guaranteed Housing Loan Program
List Below:

  • Underground Shelters
  • Basements
  • Hobby Structures such as game rooms and art workshops
  • Garden Shed
  • Hobby Greenhouses
  • Hobby Tool Shed
  • Detached Garage w/ no attached garage
  • Garages
  • Old Decorative Windmills
  • Carport
  • Well Sheds
  • Specially Designed Features for Disabled Persons
  • Water Pumps
So, as long as the structure is not big enough to house workers and animals combined and does not produce income, you should be good. Commercial barns, farms and crops are not allowed.
The USDA does not put a limit on the acreage of the property. However, there is a 30% land value to total value ratio maximum.