Historic homes, whether individually listed on the National Register of Historic Places or located in a designated historic district, are eligible for standard residential mortgage financing. Agency guidelines do not exclude historic properties. The underwriting challenges are primarily in the appraisal (comparable historic home sales are limited) and the insurance (replacement cost coverage for period materials can be expensive).
Appraisal Considerations for Historic Properties
Appraisers must find comparable sales of properties with similar historic character, age, and preservation condition. In communities with concentrated historic districts, this may be straightforward. In rural markets with isolated historic properties, the appraiser may need to expand the search radius significantly, use time-adjusted older sales, or rely more heavily on the cost approach with period-appropriate reproduction cost estimates. The appraiser should have specific experience with historic properties in the local market.
Renovation Restrictions in Historic Districts
Properties in locally designated historic districts are subject to review by local historic preservation commissions for any exterior alterations. Window replacements, roofing, siding, additions, and even paint colors may require commission approval. These restrictions affect the feasibility of renovation plans and should be disclosed to the borrower before the purchase contract is signed. The Secretary of the Interior Standards for Rehabilitation govern federally recognized historic property renovations.
Federal Historic Tax Credit
The Federal Historic Tax Credit provides a 20% income tax credit for the certified rehabilitation of income-producing historic structures. This credit does not apply to primary residences. Some states offer separate historic tax credits that do apply to owner-occupied homes, providing a meaningful subsidy for renovation costs. The FHA 203(k) loan can finance renovation of historic properties subject to compliance with applicable preservation standards.
Aria can explain how historic property designation affects appraisals, renovation requirements, and which loan programs are available for historic home purchases or renovations. Ask at vicariointel.com.
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