Financing Land . . .
When you buy a home, there are many shapes and sizes of mortgage available. To name just a few, you may choose 1) Conventional, 2) VA, 3) FHA, 4) FmHA, 5) NoDoc, 6) FNMA 7) FHMLC and many other “hybrid” mortgages. But, what about when buying land? Lanbuyers should ask their agent how to finance land.
When buying mountain land for sale in North Carolina, especially large acreage tracts, it’s a much different story. Because land loans are not insured by the government, only a limited number of sources exist. The good news is that with loans for land the process is much simpler and much less frustrating than applying for a home loan.
Loans For Land
Traditional Lender Financing
Two primary sources of money are available for land loans: commercial banks & Carolina Farm Credit
Commercial Banks – Any commercial bank in North Carolina can be a source for a land loan, however their terms for making loans for land seem quite conservative at this time. Some may avoid land loans altogether, so it may be wise to begin with your personal or company bank.
Banks will generally make a land loan for 10 years max but, depending on your existing relationship with the bank, they may go as long as 15 years. Land loan interest rates are generally competitive, and may range from 5-8% at present, depending on whether they are fixed or variable rate land loans.
The amount of downpayment you can offer may be the single greatest “carrot” you can extend to the bank. They seem to prefer 25-30%, but some are requiring as much as 50% down. All seem to require high credit scores and credit history. You may want to get a copy of your credit report before approaching a bank. You can do this by going to www.myfico.com where, for as little as $14.95, you can get your complete credit history and score.
All banks prefer to get an appraisal before making loans for land. Again, because of the national economy and the bank’s recent experiences with real estate, and more specifically land, you may find the appraiser to be conservative with his estimate of land value.
Carolina Farm Credit – This source of lender has been, over the past few years, a very attractive source of land loans. The Farm Credit organization is national in scope with regional offices throughout the state, but they are NOT a government program. They are a “non-profit” which makes for a unique borrowing experience. This lender can make land loans of any size with terms up to 20 years. They can also lend up to 85% of appraisal land value. That translates to 15% down. They will loan based on either “fixed” or “variable” rates that are almost always competitive with banks. One of the most appealing aspects of choosing this lender is their “Patronage Fee” program. Because they are a non-profit, they approach their land loans differently than traditional lenders, i.e. commercial banks.
When you borrow and close on loans for land from Carolina Farm Credit, you are required to purchase $1,000 in stock from their organization. That is often included in the loan amount borrowed. At the end of each year, Farm Credit looks at what is normally considered their “profit” for the year. Because they are a non-profit, it is called “Surplus” on their accounting books. Early each year, they declare a surplus dividend or “Patronage Fee” which is paid back to everyone who has a loan with them. For the year 2010, for example, they declared a 23.5% “Patronage Dividend”. This means that for every dollar in interest paid in 2009 on each land loan, they paid 23.5% of it back to the person or family having a loan.