Land Loans and fianacing

[ovrszd]

Thanks for the update. I'm really interested in posts like this. Great, honest example of real estate values in other parts of the country. My Son and DIL are getting ready to sell 5 acres, 1,500 sqft earth contact home with attached one car garage on shoreline of 100 acre lake. When they get an appraisal and move forward with the sale I'll post details.

 

[Kira]

Good topic. It is great to learn from the experience of others. I should say, a lot of people have to take out loans to start farming. I want to add that a loan payments calculator can come in handy. When we were getting a loan, it helped us to evaluate loan term, optimal interest rate, and our own capabilities. I hope it will be useful for you. Maybe it will be useful for someone else.

 

[deezler]

If you're lucky enough to live in Michigan or northern Wisconsin, Greenstone farm credit is simply amazing to work with on land loans.

When I bought my vacant 19 acres, conventional national banks didn't want to help. Local banks did, but only by acting as a middle man via Greenstone farm credit. So I basically had one choice. Greenstone only required 20% down, and their rates are just about a 0.5% above the national averages. You have to pay $1000 fee to join the co-op, but then they pay you back a patronage check every year based on their profits. They gave back something like $80 million dollars to their members last year alone. You can look at it like a shared profit, or just like effectively lowering your interest rate. They were right there for my house construction loan and then converted into a standard mortgage thereafter. Now my effective interest rate is under 3%.

Vacant land loans don't have to be expensive or cumbersome, just need a bank that knows what they are doing.

 

[ovrszd]

Good topic. It is great to learn from the experience of others. I should say, a lot of people have to take out loans to start farming. I want to add that a loan payments calculator can come in handy. When we were getting a loan, it helped us to evaluate loan term, optimal interest rate, and our own capabilities. I hope it will be useful for you. Maybe it will be useful for someone else.

I think the one I use is "BankRate". Regardless, very handy tool. Quickly can discover required payments on a loan.

 

[geteh]

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 mortgage? It’s a good idea to check Credit Acceptance reviews to see if they offer any insight into how they handle land-to-home conversions, as some lenders may have specific policies for this process.

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?

Land loans generally come with higher interest rates, typically 1-3% more than traditional mortgages due to the added risk for lenders. The down payment for a land loan can be substantial, usually between 20% to 50%, depending on the property and lender requirements. You can borrow against a 401(k) for the down payment, with limits typically set at 50% of your balance or $50,000, but keep in mind the repayment terms. If you're planning to build a home in the future, you may be able to convert a land loan to a regular mortgage once construction is complete, but it's important to check with the lender beforehand to ensure this is possible. Using timber to offset part of the down payment could be challenging since lenders might not consider it as reliable collateral, given its variable market value and the costs of harvesting. Lastly, you could potentially use a home equity loan or HELOC on your current home to help cover the down payment for the land, but this would add another layer of debt to your current property.

 

[MossRoad]

Please see post #13 above. Borrowing from 401K is the last thing you'd want to do.

 

[paulsharvey]

Please see post #13 above. Borrowing from 401K is the last thing you'd want to do.

This was all from a pretty long time ago, maybe 2020? We did end up buying a property with a home on it in August of 2024. I did cash out a 401k, borrowed against another, and wife also got a loan on hers as well. Are there down sides to the loan, yep. It really does eat into your check. Are there down sides to the cash out, yeah, you only get about 60% of the value, and then I have more taxes due on that as well... The retirement side, eh, I've got to work for 30 more years regardless.

Now, once we sell the old place (fingers crossed in the next couple months), we can pay off the two loans, and refi, with additional money thrown at the new place to atleast delete the PMI, and also get the payments lower.

 

[paulsharvey]

We did also make a minor run at a 7.9 acre vacant property, land only, but our debt to asset ratio wasn't good enough. Not debt to income, for the Farm Credit, land loan, they wanted debt to asset ratio. Neither of us Loved that property, or we could have made a situation work.

 

[paulsharvey]

In hind site, USDA rural development loan might have been a good option for the property this post was originally about, at the time. I dont know for sure if our income was low enough at the time, but when we did buy in 2024, we were over the USDA income limits. My understanding is, that rural development loan would have been perfect for what we were trying to do, very very low down payment, the ability to convert land loan, to construction loan, to mortage, pretty seamlessly. The catch, you can only make like 110% of the median county income, and of coarse it has to be a rural county

 

[MossRoad]

When we bought our vacant AG land back in 1989 we originally went to Farm Credit Services. They said we could borrow the money from them at 20% down, but they said we'd be smarter to go with the blanket mortgage on our existing home and the land tied together to avoid the 20% down requirement on vacant land, and even recommended another lender that did blanket mortgages. It worked out well for us.

Good luck with your new place!