FHA Loans & Acreage: Understanding Land Limits

The Federal Housing Administration's (FHA) mission statement is "to create strong, sustainable, inclusive communities and quality affordable homes for all." In keeping with that message, there are no limits to the number of acres on an FHA mortgage, except in an unusual circumstance.

Excess Land

If your parcel size exceeds what is normal and customary in your neighborhood, that is classified as excess land, and no value is assigned to it in an appraisal. For example, if a home in a subdivision has a 3-acre lot but almost all other homes have ½-acre lots, no value is assigned for the property over that ½-acre average. This occurs most often in a cul-de-sac.

Separate Use

No value is assigned to acres that could have potential separate use. "If a property has access to different road frontage or easements," says certified FHA appraiser Larry Cissa, "the area would be judged as potential separate use, and that acreage would not receive value in the appraisal."

Comparable Acreage

The elimination of the value of those portions considered excess land or separate use can lead to an appraised value that is less than needed for an FHA mortgage approval. Therefore, one of the keys to having a property accepted for an FHA mortgage is buying a parcel, including the house and acreage, that is deemed comparable to others in the immediate area.