Investing in raw land can be an exciting opportunity for those looking to build their dream home, start a farming venture, or develop a hunting property, amongst other things. Purchasing raw land often requires a substantial financial commitment, and many individuals may need to secure a raw land loan to make their vision a reality. In this article, we will explore the world of raw land loans and discuss the current raw land loan rates in 2024. We will also provide tips for choosing the best loan option, and outline the process of obtaining a loan for raw land.
Raw Land Loan Rates
Since its founding over 100 years ago, First South Farm Credit (FSFC) has been financing all types of rural land. FSFC now has grown to over 40 branches with 9,000 members in Alabama, Louisiana, and Mississippi. First South Farm Credit basically lends money to people for pretty much anything that they want to do “in the dirt”. That could be row cropping, raising livestock, growing timber, farming for wildlife, or raw land. We catch up with them frequently on the Huntin’ Land Podcast to learn about all aspects of land financing as well as keep an eye on the current raw land loan rates.
As of the time of this writing, raw land rates are in the high 7’s to mid 8’s range depending on the financial position of the borrower and the terms of the loan. When you borrow money from FSFC, you become a member and that means you own part of the business. That ownership entitles you to share in the profits through their Patronage Refund Payment Program. In other words, First South Farm Credit gives its members money back. While it can’t guarantee payments back to you or the exact rate of return, as long as it remains profitable and well-capitalized, FSFC is committed to sharing its profits and has made patronage payments for the past 23 consecutive years.
Raw Land Loan Options
Raw land loans, by definition, are land loans for tracts that are unimproved, meaning, in general, there are no sewers, roads, electricity, etc. While many lenders will not have anything to do with raw land loans, lenders who are affiliates of the National Farm Credit System, such as First South Farm Credit, are well-versed in providing financing for these types of properties.
The National Farm Credit System is a network of borrower-owned lending institutions, and First South Farm Credit specializes in providing credit for farming operations that include crops, livestock, land, and timber. FSFC is also chartered to help with financing lifestyle farms, rural home sites, or rural land tracts for enjoyment or investment purposes.
“First South can make loans for anything a landowner wants to do to develop his property or its habitat or the amount of wildlife there. If you’re playing in the dirt, we want to be in there with you, as long as you’re improving the value of the dirt, which is the collateral of the loan,” says Taylor Hart, the branch manager of First South Farm Credit in Opelika, AL.
“First South Farm Credit can make construction loans and, if needed, can turn those loans into long-term loans. Some landowners are building secondary homes, hunting cabins or lodges, and others want to put their primary residences on 20 to 30 acres. Perhaps that person wants to sit on his or her back porch and look at a pond and we make loans for pond construction as well,” Hart said.
How To Get A Loan For Land
While you may have heard that getting a land loan is more arduous than other loan applications, the fact is that when working with the right institution it is not much different than how you may have gotten other loans such as those for your primary residence. Down payments are typically in the 20% range and there are even options for buyers who want to buy land with no money down. Be prepared to share the following with your lender:
- Current Financial Statement Information
- Balance Sheets for Entities you own or are a major shareholder of
- Complete tax returns or another form of Income verification such as recent paystubs
- Balances of Investment and Liquid Asset Accounts
The Importance Of Land Pre-Approval
In my time as a land real estate agent, I have seen the heartbreak from willing buyers when they miss out on their dream property. The most common reason I see buyers miss opportunities is because they do not have their financing in order. When a landowner is ready to sell their property, they want to go under contract with a buyer who is almost 100% guaranteed to close. When you come to the offering table and are in competition with another buyer who has fewer contingencies (or none at all) the landowner is more likely to go with the sure bet, even if that buyer’s purchase offer is slightly lower than the other with all of the contingencies.
Today’s land market is more competitive than ever. Drone Tours, interactive mapping, and stunning online photography mean that shoppers are more prepared than ever to make an offer as soon as they confirm a property is what it looked like online. Don’t let a simple bit of paperwork be the reason you miss out on your dream. If you are considering buying raw land, do yourself a favor and reach out to your local National Farm Credit Affiliate like First South Farm Credit, and get approved before you are ready to make an offer. In addition to financing land, FSFC can finance your land improvements, new and used tractors, and other equipment that is used to maintain and enhance your rural property.
