You’ve certainly heard about (or experienced) the reduction in available credit for land purchases. There is still ample money available for higher-quality loans—loans with large down payments, consistent and adequate repayment sources, reasonable amortizations with frequent payments, etc. But the more questionable loans that were easy to get three or four years ago are no more—those with little money down, repayment dependent on capital gains, long repayment terms with interest-only payments, limited or nonexistent loan conditions, and so on.
So, the question becomes, if I’m in the market for a land loan and I know conditions are tighter today, what can I do to increase my chances of approval? Here are a few ideas for you to consider:
Set Reasonable Expectations
If you meet with your lender and tell them you’re looking for a loan on a tract of timberland and you want to put down 5%, pay only interest for two years, and that you plan to pay for the land by selling another tract you own, not only will you probably get turned down for the loan, but you will make it very difficult to cut any other deal with that lender.
Even though you may be willing to accept terms that are less liberal, you have put it into the lender’s mind that you’re just like the folks he lost (or is currently losing) money on. Start the process knowing that you will not get a loan with terms like those available in 2006.
Prepare a Professional Financial Information Package
You will need to provide financial information to get a loan, so why not go ahead and prepare this before you start making the rounds talking to lenders? At a minimum, gather the following:
- Three years of tax returns (including schedules);
- Personal financial statement / balance sheet (you can find templates online);
- Verification of liquid assets (cash, stocks, mutual funds, etc.); and,
- Business information (if you own a business, provide the same information mentioned above on your company).
Your lender may eventually ask for some additional documents, but having this information ready up front in the application process will show you are on top of your finances and are a serious loan prospect. Also, having this information together early in the process will make it easier for you to shop for the best rate and terms, as your lender will need some idea of your financial profile to give you the best quote they can offer.
Pull a Credit Report
You can do this for free at www.annualcreditreport.com. If there is something incorrect on your report, the site has instructions on how to request that it be corrected. If you have any judgments, collections, significant delinquencies, or other issues, go ahead and bring these up with your lender early on in the process. They will find out about it eventually, so it’s best to get it out there and explain what happened. Believe it or not, lenders are human, too, and we don’t like getting surprised.
Gather Information About The Land
You may not have identified your dream tract yet, and that’s all right. I encourage you to start your conversation with your lender early, even before you settle on a specific property.
But, if you have identified a tract you like, bring as much information as possible with you when you meet with the lender. When prices on land—regardless of quality—were increasing year after year, many folks quit paying attention to all the details that are very important to a successful land transaction (whether as an owner or lender). That ship has now sailed, so your lender will be very interested in the characteristics of your tract that drive value and marketability (e.g., road frontage, water sources, income-generating potential, easements, soil types, neighborhood, structures on the property, timber volumes, and so on). Start your “sales pitch” from the first meeting to make sure your lender is comfortable committing money to the property you’ve chosen.
Financing is definitely still available for land purchases, so start the conversation with your lender early and follow these tips to make your transaction a successful one.
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