Land Loans and fianacing

[paulsharvey]

Wife and me are casually looking at a 40 acre property, fenced, woods, no home, well, and septic. Normal banks won't do land loans, and I have heard Farm Credit will/may. The property is only 2 miles from our current house. Couple questions

Are land loans at a higher interest rate?

I've heard you need high down payments, how high are we talking?

Can you borrow against a 401k for the down payment?

Can you get a land loan, and when you put a mobile/modular (maybe in 1-2 years) convert land loan to regular mortage?

The property has some decent timber, which I could use to offset some of the down payment, any special pitfalls with that?

We would eventually sell existing home, once other is move in ready, but not right now. Could I get a home equity loan on my current home to cover down payments?

 

[Tomtint]

Unless someone here is a banker in your local market... you would be better off asking your own local bankers. That said, I have bought my fair share or raw land over the years. Banks hate to loan on raw land... it's called land banking. IMO ....th y hate that people could finance a land purchase..then sit back and wait for it to grow in value..then dump it and the bank is shorted on interest payments for the next 30 years...that's my .02, .. but..when we now buy land, we will put it under agreement with the seller subject to building permit and financing if needed. Once you have a building permit in hand, a bank is more likely to hawk you on a loan provided you clear the typical hurdles. ..Valuation, Credit worthless, Debt to income ratio, etc etc etc.

 

[newbury]

I've a land loan for about 70 acres with the Mississippi Land Bank. If you are in a rural area in the south they seem easy to get if you have good credit. Interest rate might have been a smidge higher than a regular loan but not bad. Good people oriented towards the farmer.

 

[kthompson]

Not sure on the name now but was called the Federal Land Bank was funded it not mistaken by the Federal Government. Rates in single digit. We financed our first house with them about 75. Last time I talked with them was about two years on building a hay barn. Decided not to but what they wanted was very reasonable. If you are willing and able to you might be able to use your current property as a down payment is one is required. Of course if something happened you would lose both. Best thing to do is get on phone with them.

If it were me before I sat or built a house on it would ask about cutting an acre or two from the tract to give me more options is I ever wanted to sell the land or the house. Ask on taxes and insurance both ways. Some home insurance companies will not insure the house if on more than I think 5 acres. Of course a lot of this can vary from state to state.

 

[Macinnis]

Two years ago, when I looked into it, you need something like 50% down.

We ultimately refinanced our house and took money out to pay for our land in cash. I would highly recommend that route.

Land is no good to a bank without electric, water, septic and a house...so you are kinda on your own.

 

[Ortimber]

I just bought bare land in June, and financed it thru Farm Credit Services. They required a 30% down payment and my interest rate is 5.5%

 

[pjigar]

Farm land banks would finance at reasonable rates with 30% down payment in rural area. I financed my land with Heritage Land Bank in North Texas.

 

[ovrszd]

Not sure on the name now but was called the Federal Land Bank was funded it not mistaken by the Federal Government. Rates in single digit. We financed our first house with them about 75. Last time I talked with them was about two years on building a hay barn. Decided not to but what they wanted was very reasonable. If you are willing and able to you might be able to use your current property as a down payment is one is required. Of course if something happened you would lose both. Best thing to do is get on phone with them.

If it were me before I sat or built a house on it would ask about cutting an acre or two from the tract to give me more options is I ever wanted to sell the land or the house. Ask on taxes and insurance both ways. Some home insurance companies will not insure the house if on more than I think 5 acres. Of course a lot of this can vary from state to state.

We own 150 acres clear. Last year we built a new house and shop on it. We parceled off 3 acres to set them on. Kept the remaining 147 acres clear. Owe $30K on the 3 acres with new house and shop. Minimizing our risk considering worst case scenario.

 

[JethroB]

Farm Credit of Florida - Farm, Land and Home Loans in Florida

 

[TractorGuy]

My only experience was borrowing against our paid off home. Our situation was a little better since the land adjoins our home land.

As far as timber sales go you can plan on them leaving a much more expensive mess than you will get for the timber.

 

[ovrszd]

My only experience was borrowing against our paid off home. Our situation was a little better since the land adjoins our home land.

As far as timber sales go you can plan on them leaving a much more expensive mess than you will get for the timber.

I believe this is the first time I've heard a land owner that had his land logged admit this. Brutal destruction of a good timber.

 

[TractorGuy]

Well, I had a bad experience with my logger. My first mistake was making the deal on a handshake. I was quoted $1250 per acre yield and told they would leave small manageable burn piles. I was paid $1000 per acre and left with mountains of mess. Quotes to clean up after them ranged from $2000 per acre to $4500 per acre. The guy that gave me the $2000 per acre quote told me I would need a bigger tractor to clean up after him. The $4500 per acre quote was for a finish grade.

I ended up buying a backhoe and have been piddling along on it myself. Not sure if I will finish or just let nature have the back half. My only reason for buying the property was to maintain my privacy to some degree. I have the area between the house and the road in good shape and sparsely replanted with trees.

 

[MossRoad]

Wife and me are casually looking at a 40 acre property, fenced, woods, no home, well, and septic. Normal banks won't do land loans, and I have heard Farm Credit will/may. The property is only 2 miles from our current house. Couple questions

Are land loans at a higher interest rate?

I've heard you need high down payments, how high are we talking?

Can you borrow against a 401k for the down payment?

Can you get a land loan, and when you put a mobile/modular (maybe in 1-2 years) convert land loan to regular mortage?

The property has some decent timber, which I could use to offset some of the down payment, any special pitfalls with that?

We would eventually sell existing home, once other is move in ready, but not right now. Could I get a home equity loan on my current home to cover down payments?

Borrowing against a 401K is the LAST thing you want to do. Please look into the pros and cons of doing that. Lots of articles why it should be a last choice.

Get the timber appraised before you make an offer. Hire a consulting forester to take a look at it. Contrary to popular belief, a bunch of trees may not be worth that much. And even a grove of nice trees may not be worth that much.

If you have equity in your current home, look into a blanket mortgage. We've done it twice. It goes like this...

First time we used it...

We wanted to buy some land that was $30,000.
The bank wanted 25% down on the land. That's $7500.
We owned a house that was worth $30,000.
We put the house and land under a blanket mortgage.
Both properties together = $60,000 in value that we owned 50% of (the $30K in equity in the house).
Since we already had 50% ownership in value, that's way more than the 25% down they required.
We bought the land with NO DOWNPAYMENT.

5 years later, we wanted to move into a larger house.
House was still worth $30,000.
New house was $60,000.
Blanket mortgage on both of those properties was $90,000.
We already owned 30% of that (the equity in the first house), so again, we bought the 2nd house with NO MONEY DOWN.
The only stipulation was that when we sold the 1st house, we had to pay the bank enough $$ to keep the equity in the remaining house above the % down that we would have had to pay. It was something like $17K. So we just gave them the $30K from the sale of the 1st house when we sold it, the blanket mortgage was dissolved, and we just had a $30K remaining on the 2nd house, which is 50% ownership. All good.

Anyhow, I'd take out a blanket mortgage over a home equity loan if possible. Then there's only 1 mortgage, 1 payment, etc...

It's worth looking into.

 

[ovrszd]

Very good advice Moss. Clear, concise and easy to understand.

 

[Ford850]

The risk of taking a home equity or blanket mortgage is that if you have unexpected employment problems, you could lose everything in a matter of months. Taking an equity loan on a house that is paid for was a scary risk for me. Having said that, we used an equity loan from our house that was paid for to buy property for a new house. When the new house was nearly ready to move it (built using a construction loan), we sold the 'old' house, paid off the equity loan, and helped finish the new house. New house loan rolled from construction loan into a 15 year mortgage saving a crap load in interest compared to a 30 year mortgage. We paid extra on that monthly especially early on, and had that paid off in 12 years. We don't make a lot of money, and people ask us how we afforded building 2 new houses and being in less than 30 years. For us it was learning the rules and using them to our advantage by avoiding interest and long term loans.

 

[MossRoad]

Anytime you put your house up as collateral, be it a mortgage, home equity lone, blanket mortgage, you risk losing it if you become unemployed, disabled, etc...

My wife and I were fortunate in that we were able to plan our minimum expenses around two people making minimum wage ever since we were married. That meant we could pay our modest mortgage, insurance, utilities and food on two people making minimum wage. Of course, we both had jobs making more than minimum wage, and that was all gravy and afforded us luxuries VS just surviving. But to this day, we could survive on two people making minimum wage. Plan for the worst and then life doesn't look so bad most of the time.

 

[paulsharvey]

Thank you everyone. I think we are going to scout it out tomorrow from road, and talk to Farm Credit monday. Sounds like the possibility is pretty slim, with the huge down payment, but you don't know tipp you talk to the bankers; we might be surprised. They may be able 5o do something creative.

 

[MossRoad]

Good luck :thumbsup:

 

[paulsharvey]

We kinda scouted the edge of the property, and access is pretty terrible. I dont mind dirt roads, but this was two or three miles of bad dirt roads. I could probably live with that, but, the well, septic and an existing 24x54 garage slab (newly poured) at the main gate; you about had to drive through a border line homeless camp to get too. With the stretch of the price, and the proximity of the building site to the neighbors make it not worth the risk to us. Thanks everyone for the input and we will continue casual search.

 

[paulsharvey]

As an update, we found an interesting property, right area, 15 acres with 200 ft on a 600 acre lake (wife wants water). It has 2 mobile homes, and the real estate agent said one needs removed, the other is old but has had some work recently done. $229k. Talked to Farm Credit, and for their "home" loan, mobile homes can only be 20 yrs old. Their 'Land' loans have 20% down, and max term of 10 years. They also do construction loans, but the seller has to agree to an extended closing date, until contactor, contract, loans, ect are in place.

This property seems to be neither fish nor fowl; too much to buy it for land, home not what we want to live in (based on 1972 age, and realtors desciption), so we will keep looking.

Just did the update incase someone else looking is wondering about loans, ect too.

Our wants:
5+ acres, more is better
right area (same county, same school zone, same um... whats the political way to say it... demographic...)
water (on lake, has pond. ect, nothing fancy)
Land plus home (200k allowance for new home) for 300-325k
No HOA
Decent access, not necessarily paved, but 365 day a year access, not some of these ones you can't go home if it rains much

We don't have to move, but our 1400 sq 3/2 on 2 acres is shrinking daily as the kids get bigger, we get more stuff, and now someone is building on the lot next to us. and you realize how Small 2 acres really is