HUD HOC Reference Guide

Unique Properties

Chapter 1
Appraisal & Property Requirements
Page 1-17

A. Unique properties - Sometimes a unique property, such as a log home, extra small home, lower than normal ceiling heights, etc., is submitted for FHA insuring. The eligibility of these properties depends on whether or not the property is structurally sound and readily marketable. If a property meets these criteria, the appraiser establishes market value. However, depending on the uniqueness of a property, the final determination to accept or reject the house is made by the lending institution's underwriter.

B. Shared lots with undivided interest - Properties with legal descriptions that read "An undivided 1/2 (or 1/3,) interest in and to Lot. . . . ." are NOT eligible for mortgage insurance. If requested to do an appraisal on a property with this kind of legal description, the appraiser should REJECT the property as the lot is not considered a Fee Simple entity. The lender should be notified of the Reject as soon as it is determined.

C. Excess land is defined as that which is larger than what is a typical and readily marketable real estate entity in the neighborhood AND capable of a separate use. Generally, the excess portion can be subdivided and marketed as an individual parcel. However, in small communities and outlying areas, appraisers must use different criteria because the market may accept a wide variance in lot sizes. If the plot contains excess land, the appraiser should describe it but not value it. In this instance, the appraisal is based upon a hypothetical condition in which only the value of the portion of the land which is not considered excess is estimated. A legal description of the portion being appraised is required, which may entail a survey being performed. The appraiser must also describe the portion being appraised. The lender will ensure that the entire property (including any excess land) will be encumbered with a mortgage and a note and that the maximum mortgage amount is calculated only on that portion of the subject property which is not considered excess land.

D. Non residential use - Any nonresidential use of the property shall be subordinate to its residential use and character. A property, any portion of which is designed or used for nonresidential purposes, is eligible only if the type and extent of the nonresidential use does not impair the residential character of the property.

Areas designed or used for nonresidential purposes shall not exceed 25 percent of the total floor area. Storage areas or similar spaces which are integral parts of the nonresidential portion shall be included in the total nonresidential area. Please see: HUD Handbook 4905.1 Rev-1, Section 2-6.

On 203(k) mortgages, the percentage floor area used for commercial purposes follows these standards:


Allowable % of Commercial Purpose

One story building


Two story building


Three story building


E. Move ons

This procedure applies only to stick built homes: Manufactured homes (mobile homes) are not eligible for FHA Insurance if they have moved. The only movement acceptable for manufactured homes is from the factory to the dealer and then to the site. Once there it must remain. It may be jacked up to have a permanent foundation installed. (See the section on Manufactured Housing.)

Homes moved without prior approval: A house which has been moved to a new foundation without prior HUD approval is to be treated in the same manner as proposed construction. That is, if it has been on the new foundation for less than one year, it would be eligible for only a low ratio loan; if it has been on the new foundation for more than a year, it should be treated as any other existing construction over a year old and be eligible for a high ratio loan.

If a house, covered by HUD insurance, is moved without prior approval, whether emergency or non-emergency, the move is made at the risk of the mortgagee. Any damage which may occur to the house during the move will be the responsibility of the mortgagee.

The 203(k) program is available to assist an applicant to move a house. Please see: HUD Handbook 4150.1 REV-1, Section 12-6

F. Forest and farm property tax deferral programs - The programs provide a deferral of a portion of the property taxes when the land qualifies under these uses. The "deferred" portions of the taxes are eventually totally forgiven if that land use continues for a specified period of time.

Farm or forest deferral of taxes does not make a property ineligible for mortgage insurance. If it is likely that the farm or forest use will not continue, a termination of deferral and payment of all deferred taxes must be required.

Content Archived: October 25, 2012