Questions To Ask When Buying Land
I think it is safe to say that many (if not most) people are familiar with the ins and outs of buying a home mortgage. It is pretty transparent and above board. Lenders need financial data such as what your income is, what your debt-to-income ratio is, your financial and credit history and more. They need to know what type of down payment you are prepared to bring to the table and what you have as collateral as in stock and bond portfolios, other property or investments. It is all about minimizing risk for the lender while offering the customer a competitive and fair deal. Buying land is basically the same thing but just a tad different so you need to know what questions to ask when buying land.
Whether you want to buy some property for a homestead, a weekend getaway, a hunting camp, an investment to take advantage of land appreciation or as a business venture to harvest timber or even pine straw, unless you are very well off, you need a lender to make your dream a reality.
To shed some light on the nuances on what is involved in buying and financing land versus buying and financing a home we reached out to Daily Thomas who is a vice president and branch manager for First South Farm Credit to get his thoughts on questions to ask when buying land. FSFC was founded over 100 years ago and has over 40 branches in Alabama, Mississippi and Louisiana serving 9,000 members and specializes in providing financial services to the agricultural and rural markets.
Thomas says that many people who call First South Farm Credit are frustrated because, while they can find a bunch of lenders ready and able to loan money on a house, it is a challenge to find a financial institution that is willing to make a loan on a piece of property.
“When I talk to people, I find out that the hardest part for them is finding a lender who is willing to finance it. A bank, a credit union or a mortgage company doesn’t generally want to carry fixed rate land loans on their books for a long term. And if they do, you will likely see a higher down payment and interest rates and you will often be looking at an ARM or other unfavorable terms,” Thomas said. “At First South, land financing is what we do all day, every day and we try to make it as easy and convenient as we can.”
Thomas pointed out that there are only a few lenders in each state that really specialize in land financing.
“In Alabama there are two other institutions that do the same thing we do but we just feel like we do it better. We are professionals who care about our customers and, at the end of the day, we want to make sure that we are protected and, at the same time, looking out for our customers to make sure they are protected as well,” Thomas said. “When people want to buy land and have never done it before it is nice to have someone who can take them through the process and give them some peace of mind in knowing that someone is looking out for them.
Thomas pointed out that while FSFC can finance all different types of land acreage, its “sweet spot” is parcels of 10 acres or more.
“In general, 10 acres or more is what we specialize in, whether that is for homestead use, recreational property, pasture, crop or other purposes,” Daily said. “We specialize in land.”
Thomas emphasized that regardless of the size of the parcel a customer wants to buy, the process is basically the same and all customers are treated equally.
“The ten acres that someone wants to build a house on one day is just as important to them as the 1,000 aces someone wants to hunt on. It is the same process with the exception that the larger loans means a little more work on our end for appraisals to make sure everyone is protected but the general process is the same,” Thomas said.
Thomas’s Four Questions to Ask When Buying Land
1. What down payment do I need?
“We require a minimum of 15% down and possibly more depending on the circumstance but we can structure and customize a program to fit a buyer’s needs,” Thomas said. “When it comes to terms, we have a number of options ranging from five to 30 year fixed rates to balloon notes that allow someone who wants to build on the parcel down the road and roll it over into a different loan when they start construction. It all depends on what the buyer wants to do.”
2. What are my options?
Thomas pointed out that the interest rate is dependent on the credit worthiness of the buyer, the type of loan they need and are qualified for, the down payment and the market.
3. What interest rates go along with those options?
“The last couple of years have been an anomaly with rates were artificially low for reasons such as covid. Rates are moving up, but they are still at historic lows for land loans, Thomas said.
4. How fast can I close?
When it comes to the amount of time needed to close, Thomas says that First South’s commitment to the customer is what sets FSFC apart from other lenders.
“We live in a face-paced world and time is money. Everyone wants to close as soon as possible, and we do too, but we’re never going to rush something just for the sake of closing. That’s when things get missed and problems arise. I always say it’s better to do things right up front, rather than have to go back and try again later.”
“That being said, my rule of thumb is that we can close within 30 days when an appraisal is not required and 45 days when it is, assuming there are no other issues, such as problems with the title, the need for a survey, etc. Some of that we can’t control,” Thomas further stated.
One of the benefits of doing business with First South Farm Credit is that when you get a loan you become a member and own stock in the Association. This ownership entitles you to share in the profits through First South’s Patronage Refund Payment Program.
In other words, First South Farm Credit gives its customers, who are actually owners, money back. While it can’t guarantee payments back to you or the exact rate of return, as long it remains profitable and well capitalized, FSFC is committed to sharing its profits with its members as they have for the past 27 consecutive years.