Listen as Pat Porter, land broker at RecLand Realty, addresses a question that land agents are asked quite often, especially from first time land buyers. That is, “How can I get this land financed?”.
Obtaining financing on unimproved, or raw land with no plans for improvement is typically more difficult than securing a home mortgage. A good land agent will direct potential buyers to seek advice from several lending institutions who are familiar with financing rural land.
Lenders consider land loans to be much riskier than home loans, especially if there are no immediate plans to develop the land being purchased. Would-be buyers can prepare to plunk down a hefty down payment of anywhere from 20-50% and expect to be charged a much higher interest rate than traditional home loans.
Lenders have much stricter requirements in place for those seeking approval for a land loan. As a general rule, applicants would need to show that they have legal, deeded access to the land before a lender will fund the loan. However, as Pat points out, there are exceptions to the rule, such as financing a timberland tract. If wood product is being grown on the property, whether or not the property has legal, deeded access is generally of little concern to the lender.
If you’re dealing with a property without deeded legal access, be upfront with your lender. Pat recommends being direct with lenders; ask them if not having legal access will present a problem.
Buyers should not be surprised if lenders and title companies require a new boundary survey. Whether or not it is required, varies from state to state.
Those looking to purchase land should not be discouraged from attempting to obtain a land loan. Lenders and land agents will work closely with buyers and do the best they can to help buyers obtain financing for land.
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