Do you know what questions to ask when buying land or what you might need before starting the land financing process?
Before anyone buys a piece of land they have a ton of questions about the type of property they should buy. But what most people do not think of is HOW they will put the deal together. It’s easy to dream about the different opportunities, but it’s important to assess the financial considerations along with the characteristics of the land. These 8 questions to ask when buying land are some of the most common, and most overlooked, questions I answer as a loan officer for rural land. I have also provided a checklist of things you might need before starting the land financing process. I hope these questions and our land financing checklist help you in assessing your readiness to finance your first, or next piece of property.
Question 1: How much of a down payment do I need?
Typically you can expect to need between 15-20% down, depending on the land being financed and the credit of the applicant. However, there are alternative options, such as pledging equity in real estate, other than the traditional cash down payment.
Question 2: What kinds of loan terms are available for financing land?
Loan terms from as short as 1 year and as long as 30 years…and anything in between. We can tailor the loan term to fit your personal situation.
Question 3: What are interest rates on land loans?
Interest rates for land loans vary depending on several things. Credit is the most important, but also what term you select has a big impact on the interest rate. Rates change every day, so it’s best to speak with one of our lenders to get the most up-to-date and accurate rate quote possible.
Question 4: What is the minimum number of acres you will finance?
We really do not have a minimum acreage requirement. Typically we say that we can finance 10 acres or more, but depending on the location and type of property, we can finance less acreage.
Question 5: What if there are improvements on the land I am looking at buying?
Our land loans apply to both bare land and land with improvements.
Question 6: What if I decide to build on the land? Do you offer construction loans?
In addition to land financing, we also offer construction loans to improve your land. Ponds, barns, cabins and even country homes are just some of the improvements that we can finance.
Question 7: Should I get pre-qualified before beginning my land search?
While it’s not necessarily required by all land realtors, it is a good idea and it’s becoming more common. Being pre-qualified going into the search has several benefits. It gives you a good idea what you can afford, you can submit an offer on a property faster so you don’t miss out on the right tract, and it gives your offer more weight because it shows that you’re serious about purchasing.
Question 8: Your name is First South FARM credit, Do you only finance farms? And do I have to farm the land I want to buy to use First South for financing?
NO! We were founded to serve the credit needs of farmers, but we can finance rural real estate for anyone, no matter what they do for a living. First South also does land financing for many different purposes, whether it is farmland, hunting land, investment property, or a future home site.
Don’t Be Intimidated
Buying land can be an intimidating proposition. It can be difficult to find financing for unimproved land and most people do not have the cash readily available to pay for it outright. The land financing checklist listed below is a good starting point for people ready to finance land, whether you’re seeking a pre-approval or you’re ready to move forward with a purchase. Having these items prepared makes the entire land financing experience much smoother and enjoyable.
The Land Financing Checklist
1. Personal Financial Statement (Balance Sheet): If you don’t have one prepared already, simply make a list of your assets and liabilities. Basically, what you own and what you owe.
2. Most Recent Tax Information: Be prepared to provide 2-3 years of tax returns, including W-2’s.
3. Current Pay Stub (For all applicants)
4. Asset verification for any significant accounts: Bank statements, 401-K statements, etc.
5. If self-employed, additional information on the business: Business financial statement, Profit and Loss Statement, Business tax returns, etc.
6. Sales Contract: If you’ve already found the right property and have it under contract, or when you do, your lender will need this.
7. Legal Description of the property: This can be found on the most recent deed or from a new or existing survey.
8. Plans and costs for any improvements to be financed
Land Financing can be a stress-free and enjoyable process. If you feel like not everything has been answered or if you would like more clarification on the checklist above, you can contact me at First South Farm Credit. Leave your questions in the comments below or contact me anytime at LThomas@FirstSouthLand.com or the First South Farm Credit Birmingham office (205-970-6030).