I have noticed that many people are scared or bothered by the process of obtaining a land loan. This process does not have to be scary or bothersome. I asked Lex Brown, a loan officer with First South Farm Credit to write an article for my blog that would help you make sense of the process and show you that it is really not that bad. Lex has put together a very informative article that you should find useful in your quest to buy land in Alabama. First South Farm Credit can help you with loans on farms, timberland, hunting land, investment land, and recreational property.
By Lex Brown – Loan Officer, First South Farm Credit in Oxford, AL
So you have finally found the tract of land you have been searching for, the perfect getaway spot and a good investment. You are ready to get serious about purchasing the property of your dreams. What next? Most of us are familiar with home mortgages, but how do you proceed to obtain credit from a land lender? Land lenders, primarily Farm Credit, specialize in financing rural land and farms.
Why Farm Credit? Farm Credit was established in 1933 to provide credit to rural America. Farm Credit lenders pride themselves on offering great customer service, flexible terms, and knowledge of the land market. Most land lenders will finance around 75-80% of the lesser of the appraised value or the purchase price of the property, amortize the loan up to 20-30 years, and lock in the interest rate in from 3-10 years. Most home mortgages will offer a 30 year fixed rate but will typically not qualify over 5 acres. Most Farm Credit offices finance land tracts beginning at 5 acres with no acreage limit. Farm Credit typically finances a higher percentage of the value of the property than commercial banks, offer lower interest rates on land, and have programs tailored specifically to the land market. Farm Credit lenders are familiar with rural land, its value, timber, and livestock.
The first step is to do your homework. Call your local farm credit office and familiarize yourself with their programs, interest rates, collateral requirements, etc. Check your credit report for accuracy at a free site such as annualcreditreport.com. If there is any negative issues on the CBR try to get them corrected prior to visiting your lender.
The next step is to negotiate your deal and sign a contract. Provide this information to your lender along with the legal description of the property. Typical additional information required by most Farm Credit lenders is a completed loan application, a financial statement, and a copy of your last 3-years federal tax returns with W-2’s.
The lender will then evaluate all information provided. If the deal appears to be promising the loan officer will order an appraisal of the property. Upon receipt of the appraisal the loan officer will complete the loan package and submit for approval. When the loan is approved the loan officer will set up a closing with an attorney and request title insurance. Next, close the loan and begin enjoying your getaway!
Loan officer tips:
- Provide all requested information at one time. This will speed up the application process and minimize confusion.
- Request an owner’s title policy. The title insurance ordered by the lender covers the lender and not the buyer unless the buyer purchases their own policy.
You can contact Lex at: JBrown@FirstSouthLand.com or by calling him at: (256) 831-6778 or toll-free at (800) 955-1722. Visit the First South Farm Credit website at: www.FirstSouthLand.com.