Refinance fell through due to commercial zoning

9 Replies

I was 4 months along trying to refinance my primary residence, the appraisal came back that the single family house is zoned general commercial and now the bank won't finance because if it was ever destroy over 80% that a residential property could not be reconstructed. I think I've lost my 3.125% rate lock on a 15 yr conventional loan. Do I have any options available?

@Jennifer Beets

I think your only option is to try and get it rezoned residential.

Was it zoned residential when you bought it and then subsequently changed?  I presume so, since you mention wanting to refinance, or was the current lender asleep when it extended the existing 1st mortgage?

I agree with Scott.  If that were my house I would start with an alderman.  You are surely paying residential taxes and not commercial taxes.  It doesn't seem right that your house was re-zoned without your having any say as the property owner.   You may want to seek out an attorney. 

Most of the time this is an issue that your lender should have let you know about right off the bat.  See if you get can is re-zoned.

I don't think you necessarily have to have your home rezoned. There are properties all across this country that get special zoning changes to another higher density zoning, and they still get funded every day. There should be a clause in the zoning that says that your existing residence can remain, and that repairs to the existing structure are allowed. You need to go to the zoning commission in your area and have them give you a letter stating your parameters. It should state your property can remain, and that you are allowed to rebuild/repair the same structure for the most part.

Have their underwriter reconsider with that. If not, find a lender who'll have that reviewed up front. It is an underwriter discretion item, so make sure an underwriter reviews.

Could always see if it's more valuable as commercial and just sell it and move somewhere else ;)

The zoning has been the same since day one. It didn't make any difference when I bought.

I pay residential property taxes. This came up 4 months after application, only after the appraisal came back. I think they should gave caught this on a preliminary title report? The appraisal also came back as a two bedroom, when I bought it MLS and original appraisal said it was a three bedroom.

The fact that the title company will insure it is more the point that you can refinance it as a single family residence. If you could buy it in the first place as such, that's further proof. Get a letter from your zoning commission as I stated and you'll be fine. Just be willing to change lenders.

Should the lender have to refund me the appraisal cost because they failed to look at the zoning on the preliminary title report?

@Jennifer Beets

 - we went through this with our house too.  The zoning code was changed after it was built so we are grandfathered in... but if we destroy the house it has to be built to the new zoning, but if it gets accidentally destroyed it can be rebuilt to its current use. 

I would find a new lender and tell them of this issue before you start the process.  Most should know how to avoid the issue in underwriting if they are properly prepared.  

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