Financing a Land Purchase

Five Tips for Financing a Land Purchase 

It pays to know a lender who knows the country

Rural land loans are not created equal, nor are the lenders who finance them. Whether purchasing land for farm use or new home construction, it’s important for your clients to understand the implications of working with different lenders to finance rural property.

The following tips developed by Farm Credit Services of America (FCSAmerica), a lender that specializes in financing homes in the country and rural communities, explore five considerations for securing a land loan. 

 1.    Choosing a Lender

When it comes to financing a land purchase, it pays to work with a lender who has rural property expertise. With over 100 years of experience serving rural America, FCSAmerica is uniquely positioned to guide rural land buyers through the loan application process.

Local service coupled with financing features such as no acre limits and a one-time closing for home construction through permanent mortgage are added benefits FCSAmerica offers.

2.    Understanding the Nature of the Loan Request

Financing a land purchase is not as clear cut as financing an existing home. Lenders tend to review land loans with more caution than a home loan because it is more difficult to value vacant land and sell it if a default occurs. It’s critical to partner with a lender who is willing to take on this risk, and to be transparent about the specific plans for the land being purchased.

3.    Finding the Perfect Plot

In addition to being intentional about land use, buyers should also consider the type of land they intend to farm or build on. Land generally falls under two categories: improved or raw (unimproved) land.

Improved land qualifies as property that already includes land amenities such as wells, utilities or driveways. The site may feature some or all of these residential conveniences. Raw land, on the other hand, qualifies as undeveloped property.    

Although improved land is often the best fit for new home construction, location could be more important than the state of the property depending on the investment. Unimproved land, however, is generally the toughest type of land purchase to finance because of the lending risk involved. Down payments and interest rates are higher for raw land loans versus improved property loans.    

4.    Collecting Information about the Property

Before making an offer, land buyers should run through a rural property checklist to avoid potential pitfalls relating to easements, zoning laws or flood hazards. Rural lenders like FCSAmerica understand these unique challenges and have the tools and expertise to negotiate when buying or building in the country.

5.    Selecting Financing Options

Once the loan application has been submitted and approved, it’s time for land buyers to work with their lender to select the best financing options. FCSAmerica offers competitive rural property financing with low down payment options. Other FCSAmerica financing features include:

 -       Attractive fixed, interim-fixed or variable rates, and options to convert to another rate product at a later time

-       Flexible terms, including long-term options

-       One-stop loans for new home construction in rural areas.

-       Buy a home site now and build within 5 years.

-       Flexible collateral options, including existing land and lots for new home construction.

 There are many advantages to working with a lender who specializes in rural property. Click here for more information about rural lot loans and new home construction.

Iowa Association of REALTORS

This article was written as a collaboration of IAR Staff members or invited subject matter experts.

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