Rural Mortgages

[MarkV]

I am one of those city transplants to a rural area and don’t understand part of rural mortgages. Last year we bought 32 acres and a house in the country. The previous owners had resurveyed the property into a 5 acre tract with the house and 27 acres of undeveloped land to make it easier for them to get a mortgage. That was fine because we planned to pay for most of the property and just carry a small mortgage which we did on the house and 5 acres. We also have a second property that is 14 acres and a house that has never had a mortgage on it. Recently we have been looking at purchasing some rental property by mortgaging our second home and using the money to purchase the rental property. In talking with several mortgage brokers, from the city, we find that mortgage companies don’t want to loan money on a house with more than 10 acres. They suggest we resurvey and spit off 4 acres then there is no problem getting a mortgage on the remaining 10 acres and house. I would rather not split up the land right now.

So the question is whether this is what the rest of you have run into buying more than 10 acres with a house and wanting a mortgage? Am I just talking with urban oriented brokers and need to find a broker more rural oriented? Or are you guys holding out on me and have come up with a PTO powered printer that puts out enough cash that you don’t need mortgages? /forums/images/graemlins/blush.gif

MarkV

 

[jwstewar]

I ran into the same problem, except around here is was 5. We finally found a company that would do it. The mortgage has since been bought, so I don't remember who had originally done it. Sorry. I guess my advice is just keep looking at different companies until you find one that will.

 

[MossRoad]

Never heard of that here. Seems like fourteen acres is not much more than 10 acres, so can't see why. Maybe they are worried that the value of the entire property is divided between the value of the land + the value of the house. If the value of the land drops, the mortgage could be worth more that the entire property??? I don't know. Land prices for land zoned residential never goes down. Land prices for land zoned agricultural seems to fluctuate around here. Talk to some farm lenders instead of the city lenders and see what they have to say. Around here there is a very good organization called Farm Credit Services. They offered free advice when we bought our land. They told us we would be better off with a blanket mortgage that covered the value our our first house and the value of the land we were purchasing(two seperate properties under one mortgage). This method eliminated the requirement for 25% down on vacant land since we had more than 25% equity in the entire blanket. It worked. We bought the land with no down payment. We saved some points on the mortgage. It really worked to our advantage and there was only one payment to make each month. We did the same thing when we bought our second house. We had three properties on that blanket. Had to sign papers that we would give them X dollars when we sold the first house. Just enough to keep 25% equity in the remaining two properties. Again, it worked great and we saved money and had no down payment. Look into a blanket mortgage. Can't hurt to ask them. Good luck in your purchase. /forums/images/graemlins/grin.gif

 

[cowboydoc]

<font color="red">we find that mortgage companies don’t want to loan money on a house with more than 10 acres. </font>

That is pretty much the norm. The main reason is that the low interest rates are usually backed by the govt. The govt. wants people to help people own houses but not necessarily own land. It's also difficult to sell land with a house that has more than 10 acres.

You can usually go through the farm bureau and other lenders that specialize in farm loans.

 

[MicroPilot]

I had the same problems you are having. The city banks didn't want to mortgage a house with more than 5 acres. I have 32. We found Farm Credit Services and they had no problem with the acreage. FCS specializes in farm/rural property and equipment loans. It's setup sort of like a co-op. They've always been very helpful, and just recently financed my tractor purchase also. I called and told them I wanted to buy a tractor, and how much I was willing to spend. They pre-approved me in less than 1/2 hour.

Here is a link:

Farm Credit Services

And a quote from the site (empasis added):

Farm Credit System

The Farm Credit System (Farm Credit) is a nationwide network of borrower-owned financial institutions and specialized service organizations. Farm Credit consists of six Farm Credit Banks, and one Agricultural Credit Bank which provide funding and affiliated services to over 100 locally owned Farm Credit associations and numerous cooperatives nationwide. The fundamental purpose of this network of Government-sponsored enterprises created by Congress in 1916 is to provide American Agriculture with a source of sound, dependable credit at competitive rates of interest. Farm Credit provides credit and related services to farmers, ranchers, producers and harvesters of aquatic products, rural homeowners, certain farm-related businesses, agricultural and aquatic cooperatives, rural utilities, and to certain foreign or domestic entities in connection with international agricultural credit transactions.

Farm Credit provides some $86 billion in loans to more than a half million growers, agribusiness and agricultural cooperatives, electric and telephone cooperatives, and rural utility and water systems. Overall, more than 25 percent of the credit needs of U.S. agriculture are met by Farm Credit institutions.

Today, Farm Credit institutions are organized as cooperative businesses, each owned by it's member-borrow stockholders who have the right to participate in director elections and vote on issues affecting the institution's operations.

 

[dmccarty]

MarkV,

This is common. I had the same problem with the Credit Union and the bank. The CU will only lend money for an outright land purchase of about 10 acres or so. Both the CU and the bank wanted as little land as possible on the house mortgage. The appraisals are also more difficult since there are not that many houses on 5+ acre lots. I have seen quite a few houses on 10 acres or less surrounded by 10+ acres.

My land loan is a business loan if I remember right. It has a fairly high interest rate. Now that the house is being built we have a construction loan that will convert to a regular mortgage. We tried to tie in 10 acres on two lots to the loan but that was problematic. It should turn out that the house is only tied into the lot its built on but we shall see. There is paper work that mentions both lots as we had wanted but the appraisals only took in 5 acres not 10. The bozo loan officer we delt with no longer works for the bank. I expect we will have more issues when this is all said and done.

Later,
Dan

 

[Gatorboy]

I guess I'm going to be out of luck -- I own free and clear 50 acres of agricultural property. The property has 1 building right, and cannot be subdivided. I guess getting a loan to build a house is going to bring about some problems for me.

 

[cowboydoc]

It's hard to tell if you're being wise or are serious gatorboy. /forums/images/graemlins/tongue.gif But if your land is paid for and all you are going to do is get the building loan then that will not be an issue. If you wanted to get a loan for the 50 acres too that is where you would run into problems. You can probably even get a lower rate. At least that is what they did with our place. The place where the house is has 650 acres that is paid for. They used that land as collateral for the house loan and we got another point off of our mortgage. On our addition that we are doing they did the same thing and gave us 4.1% for 10 years.

 

[Gatorboy]

<font color="blue"> It's hard to tell if you're being wise or are serious gatorboy. </font>

Sorry, but I'm being serious. Actually, I am allowed to build a tenant house -- so I am kicking around the idea of building a small tenant house first without borrowing a penny. Living in that and start to build the main house buying materials each month with the money I would have used for a mortgage payment. If I can't swing this plan, we'll probably just get a regular construction loan/mortgage and build the main house only.

Before I can do any of this, I need to build a bridge. /forums/images/graemlins/frown.gif

 

[dmccarty]

GatorBoy,

You might very well have problems. It will depend entirely on the bank and people in the bank.

My builder is well know within the community including the local bank which is where he does most of his business. I have heard from various builders over the years to use this bank for building loans. For a variety of reasons I went with a different bank.

At least in my area it is common for the bank to only pay for materials after they have been put into the house. If the builder buys the materials and they are not used, the bank ain't gonna pay until they are on/in the house. This has caused us some scheduling issues but we have worked around the situation. Both the local bank and the bank my builder usually uses work this way.

We asked the local bank about this when we found out that this was going to happen since our builder had not had this problem before. The local bank, who knows our builder, said that yes this was a standard way of doing business but that they knew our builder and that he was a very honest man who builds a good quality house and they just paid for whatever he billed. They also don't inspect our builder's projects since its a waste of the banks time and money.

Hearing that the bank manager thinks that we have an honest and good quality builder was good news. /forums/images/graemlins/grin.gif /forums/images/graemlins/grin.gif /forums/images/graemlins/grin.gif
And so far I have not the slightest hint that this is not true.

Soooo, long story short it depends on who is envolved with the loan at least to some extent.

I had loads of problems with appraisals on our house. One was just incompetent. Adding the supposed complication of a 5 acre rural lot just blew his mind. The second appraiser still had problems when we tried to get valuations for 10 acres tied to the house. Frankly the valuation on the lot is off by half.

I was told point blank by more than one person that because I owned the land debt free that was counting against me getting the loan. Still don't understand that one but that is what I was told.

Later,
Dan