Things to Know Before Applying for a Land Loan
The process of buying land can be a long, difficult, and ultimately stressful road. Buying your dream property, whether it is simply recreational land, farm land, or ranch land does not have to be so overwhelming. In fact, just a little bit of research beforehand can make a huge difference. Here are five things you should know before applying for a land loan.
1) Ask Yourself…Is Now the Right Time?
Before even attempting to dive into the process of buying land or applying for a land loan, you may want to ask yourself if the timing is right. Are you ready to buy land? Is it the right time in your life to purchase the land of your dreams? Do you have the finances to handle it? We understand that these questions might not always be easy to answer, but that’s why we are here to help you in the process!
2) The Fundamentals of Land Loans
The second thing you should know before applying for a land loan would be the fundamentals of the process. These fundamentals are simply need-to-know items when you are starting the process. Take a look at the fundamentals below:
- Why are Land Loans so Hard to Obtain? Land loans are hard to get because of three reasons: 1) Land loan lenders are limited in number compared to home loan lenders 2) Few land loan lenders specialize in land loans and only land loans 3) Land loans are by nature riskier loans.
- Should You Get Pre-Approved? Yes! Coming to a seller with a pre-approval for financing can allow you to negotiate a lower buying price. Why? When sellers know the buyer has guaranteed financing, they know the closing process will be faster and smoother, which ultimately puts the money in their pocket sooner. The guarantee of a quick closing with a guarantee of money usually justifies a reduction in price.
- Why Do Land Loans take so Long? The average time needed to close a land loan is four weeks. This timeline can vary tremendously however, based on several different factors, including the pre-approval process, appraisal time, title work, and continual communication between the borrower and land loan lender.
- Land Loan Down Payments: When looking for a land loan and trying to determine what you might need for a down payment you can typically expect a range between 20% to 40%. Each land lender has different parameters, but we have listed three key factors that usually hold the most significant value to land lenders when determining what you may need for a down payment on a land loan: 1) Repayment capabilities 2) The appraisal and/or purchase value 3) Collateral value from land already owned
- Land Loan Interest Rates: Land loan interest rates are charged to a borrower and can be described as the cost of borrowing money. It is the lender’s compensation for servicing a land, farm, or ranch loan and bearing the risk of lending. The interest rate is the borrower’s cost for the ability to spend now, rather than save the money and make a purchase later.
3) Your Loan Options
The third thing to know is that there are different types of loans to obtain depending on the property you wish to buy. The type of land loan also depends on what you plan to do with the property. The plan is vital as you can assess whether or not the land you’re inquiring about meets your needs. In this step, a land loan officer can help walk you through the process.
4) Choose the Right Land Loan Officer
Choosing the right lender for your rural real estate purchase may be one of the most important decisions you make. Each loan is unique to its particular circumstances and people involved. There are many types of land loan products that can be structured to fit someone’s needs. There are many elements to consider when making a farm real estate purchase. It could well be one of the largest investments you ever make.
5) Have a Plan
Knowledge is power. When you are seeking a loan for land, it helps to have a clear plan, or business plan in place. “Lenders want to know just two simple things. One, how much money do you want, and two, will you pay them back?”
We hope you found this article helpful and informative. Here at Hall and Hall, we pride ourselves on being experts in land acquisition from the beginning to the end. Once the qualification part of the lending process has been established, we will take care of ordering the appraisal and obtaining title insurance on the property. Whether you have chosen that special piece of property or you are still in the process of looking, please fill out the form below and let us assist you in the process!