Financing Land

[TimC]

Has anyone financed any land lately?
My fiance and I are looking to finance 7 acres, 20% down, loan amount would be ~55k. It has a shell of a cabin on it, electric, but no indoor plumbing, and apparently this won't qualify for a traditional mortgage.

My credit union and local banks won't touch it for one reason or another. (5 acre maximum lot loan, must appraise at 150% of the loan value, etc.) More than one lender mentioned tougher standards due to the recent mortgage crisis, but we're not talking about a subprime loan here.

I don't get it. We both have excellent credit, low debt, and are WELL within our means financing this property.

Anybody financed land lately and have any sugguestions? I could easily liquidate some other assets and/or a take out a home equity loan and buy this property, but I don't want to go that route.

The only thing anyone is offering us are crazy 2 year interest only baloon type commercial loans, which make no sense for a piece of property we intend to keep for the long haul.

Thanks in advance for any advice!
Tim

 

[randy41]

banks see property thats not your personal residence differently than other property. i would go the home equity loan route. or take the interest only balloon route. or get the seller to finance.

 

[ToadHill]

Have you asked the owner to hold the mortgage?

 

[TimC]

As I gather from the seller, he's "overextended" on some other properties, and this one is mostly paid off and he needs lump sum cash. So, no seller financing.

I'd really prefer to not get into a home equity loan, but I will further look into that route. 2 year interest only baloon would make sense if I were to build soon and then roll into a conventional mortgage, but that isn't the case right now....

Thanks for the sugguestions.

It seems crazy to me that we could get financed for a $60k depreciating asset (car, boat, etc) (wouldn't but could) but not for a piece of land...

 

[MossRoad]

Look into a blanket mortgage that covers your current home AND the property. As long as you have more than 20% equity in the total package, you don't need a downpayment. (I think, and I am not a banker, but I did sleep in a nice hotel last night, etc... )

 

[Sigarms]

Here in N.C we have the Carolina Farm Credit Union which my wife and I used.

Carolina Farm Credit Country Home Loans Land Equipment Animals Bank Investment Timber

I would think you may have an organization like that in your neck of the woods.

 

[cp1969]

I don't get it. We both have excellent credit, low debt, and are WELL within our means financing this property.

Financial institutions are remarkably inflexible in their lending habits. It's as if they are not loaning money to the borrower; your ability to repay means little or nothing. Instead, they loan to the asset or whatever particular type of loan is in vogue at the moment.

That's what got us into the sub-prime mortgage mess. Everyone and their dog could see this coming, why the lending institutions couldn't is one of the great mysteries of our time.

 

[kenmac]

Has anyone financed any land lately?
My fiance and I are looking to finance 7 acres, 20% down, loan amount would be ~55k. It has a shell of a cabin on it, electric, but no indoor plumbing, and apparently this won't qualify for a traditional mortgage.

My credit union and local banks won't touch it for one reason or another. (5 acre maximum lot loan, must appraise at 150% of the loan value, etc.) More than one lender mentioned tougher standards due to the recent mortgage crisis, but we're not talking about a subprime loan here.

I don't get it. We both have excellent credit, low debt, and are WELL within our means financing this property.

Anybody financed land lately and have any sugguestions? I could easily liquidate some other assets and/or a take out a home equity loan and buy this property, but I don't want to go that route.

The only thing anyone is offering us are crazy 2 year interest only baloon type commercial loans, which make no sense for a piece of property we intend to keep for the long haul.

Thanks in advance for any advice!

For some reason .no one( banks, etc,) wants to finance undeveloped property. I guess they want a house or building on it incase they have to repo. it .I ran into the same problem once.

 

[SnowRidge]

Two words, Farm Credit. Look into your local farm credit folks. Around here they have very good rates and will finance rural property for farmers and non-farmers alike.

 

[MossRoad]

For some reason .no one( banks, etc,) wants to finance undeveloped property. I guess they want a house or building on it incase they have to repo. it .I ran into the same problem once.

They'll finance it, they just want 20% down. We went through the same thing back in 1989 when we bought our 20 acres. We owned our own home, but did not have the 20% down payment for the land that we wanted to buy. The house was worth 30K and the land was worth 30K. So we got a blanket mortgage for the whole thing. A 30K mortgage on 60K worth of property. Since we had 50% equity in the total package, we did not have to put 20% down. It is just that simple.

We then paid the 30K mortgage off in 4 years.

The next year, we moved up to another house. We did a blanket mortgage on the house we owned and the house we bought with the stipulation that as soon as the first house sold, we had to turn over enough money to the bank to cover at least 20% of the value of the new house. Of course, we put down much more and paid that house off real fast, too.

 

[TimC]

They'll finance it, they just want 20% down.

Actually, that's part of the problem here. I have 20% to put down and the banks still aren't interested.

Thanks to all for the heads up on Farm Credit. I'm going to make some calls in the morning.

 

[SnowRidge]

Best of luck.

 

[MossRoad]

Actually, that's part of the problem here. I have 20% to put down and the banks still aren't interested.

Thanks to all for the heads up on Farm Credit. I'm going to make some calls in the morning.

O.K. I get it now. You have the 20% and they still won't give you a loan. Weird. What is the zoning on the land... residential, agricultural, etc... ??

 

[TimC]

O.K. I get it now. You have the 20% and they still won't give you a loan. Weird. What is the zoning on the land... residential, agricultural, etc... ??

Zoned R1, which here is "Rural Residential". If I could convince the lenders that the cabin had running water and a bathroom, (Other than the creek and trees) I'd have been financed yesterday with great terms. But, since at even a distant glance that is obviously not the case, I have to be honest, and the "unfinished" cabin is the hold up, making it a "land only deal" keeping normal banks away.

From the looks of the website, my local branch of Farm and Home Loans Everything you need to finance your dream in the country should be able to accomodate. We shall see in the AM.

 

[EddieWalker]

When I bought my land 4 years ago, they required 30% down for raw land. No home or utilities on the land at thte time. I talked to several banks and got the same story.

I put the money down and was able to lock in a fixed rate of 7% for five years, then it went variable. Luckily, I was able to sell most of it and pay off the note for the 68 acres that I now own.

Eddie

 

[rgood]

As everyone has already said, Farm Credit may be a possibility.

Another viable option is to borrow against a mutual fund.

Another thing to do is to go out on the net to whatever companies you can use to get you and your wife's credit score - Once you've got that it's easier to go bank shopping - Do you have a realtor? They helped me find 2 banks to choose from, that I was unaware of, on our land purchase.

A 4th option is to find one of those guys that's a loan shopper - They advertise by saying they will find lowest rate for you - I have a friend that does that.

 

[dooleysm]

I don't understand why you wouldn't go with a home equity loan? Unless the rate is just too high, you get the benefit of using interest payments on your home equity loan as deductions on your federal taxes, assuming you itemize.

 

[KentT]

As mentioned, I used Farm Credit to buy my retirement tract in Tennessee a couple years ago. Required at least 20% down, but was probably the easiest loan I've ever gotten, as far as paperwork and customer service goes... Painless. Rates were excellent too -- slightly over 6% as I recall.

Another plus is that they will consider equity in the land when it comes time to build, helping deal with the construction loan and any resulting morgage. In fact, I got a "closing cost discount" coupon for use when I do that...

 

[MossRoad]

I don't understand why you wouldn't go with a home equity loan? Unless the rate is just too high, you get the benefit of using interest payments on your home equity loan as deductions on your federal taxes, assuming you itemize.

.... and assuming your itemizations exceed the standard deduction. We have itemized for 22 years and have never beat the standard deduction. We came close one year. However, we are fortunate to have good health and to live in an area with cheap housing. That may change if we build a new house rather than moving up to a used home again.

 

[TimC]

The reason I don't want to do a home equity loan is because it would put me at ~10% equity in my current home, making my rates not so good. Plus, if I decided to sell my current home, I'd not get the equity out of it to put towards something else. By financing the property separately, I have decent equity in both properties and be more flexible if we decided to sell one or the other...

Off to Farm Credit...