Financing Land vs. Homes

There are notable differences in financing homes and vacant land. Most individuals are aware of the financing process for homes, but with land, steps taken, available interest rates, and other factors, can vary significantly.

“When you finance a home, most lenders offer financing,” Stamper said. “You can call a local bank, mortgage broker, etc. Everyone has something to offer, and most of the time, they’re similar programs.

“When it comes to land, it is more specialized,” Stamper continued. “This comes with a little higher risk. So, a lot of lenders can’t help. Or maybe they do have a program, but financing is limited. With us, depending on your purpose, we offer different programs of financing.”

Of course, from a lender’s perspective, offering land loans comes with more risk than traditional home lending. Therefore, interest rates tend to be higher than if purchasing a primary residence.

“Buying land, whether vacant or just isn’t a primary residence, is a riskier loan and type of lending,” Stamper said. “If someone owns a home, and is looking to buy land, what are they going to focus on making a payment if times get tough? They don’t want to be homeless. Thus, risks for land are higher, and interest rates reflect that. Typically, when looking at land, interest rates are higher than with primary residences.”

Thus, it’s important to recognize and consult lenders who specialize in land, rather than homes. By doing so, secure better advice, (potentially) lower interest rates, and more favorable terms.

Qualifying for Financing

With a basic understanding of the loan process, it’s time to qualify for financing. Of course, when financing a land purchase, it requires taking the proper order of steps.

“It’s best if they talk to a lender before looking at property or talking to a real estate agent,” Stamper said. “A lot of the time, an agent will ask about the budget. They say it’s $500,000, but they come to me, and that budget is only $250,000 (because of down payment, debt-to-income ratio, and other various reasons.

Potential buyers must meet relevant criteria. A loan officer will analyze your household income, available assets (for collateral), existing liabilities, credit score, and more. These things are used to determine qualification.

Stamper says that, if you’re in the market, or hope to purchase land or other type of real estate, conducting the pre-qualification process helps set your budget. This determines what loan you qualify for. Then, work with a real estate agent to identify properties you might be interested in.

Not everyone will qualify for a loan to buy property. That said, don’t be discouraged from starting the process. If underperforming in a category, work to reach necessary benchmarks to qualify for financing.

Finding the Right Property

Once pre-approved for a loan, begin the search for the right property. Study listings and auction advertisements within the desired location. Then, determine your intended land use and identify compatible properties. To accomplish this, contact a Whitetail Properties land specialist within your designated area.

The plans for the property matter. For example, maybe you hope to buy 100 acres and hunt on it. Maybe you’ll eventually put a cabin on it. Regardless of plans, consider everything that goes along with making improvements. Utility installations, project costs, and more, are important considerations.

Of course, there are different types of properties, such as raw, unimproved, and improved land. Drill down even further, and you have hobby farms, working farms, self-sufficient properties, rental properties, and more.

Furthermore, does it have a building site? Can you even run utilities into the property? Does it have potential to serve as a multi-purposes property (i.e.: farming and timber)? What species of wildlife does it harbor? Without question, Stamper stresses that there’s a lot more to think about than just buying acreage.

Additionally, for those looking to invest, there are certain property types to look for. It could be vacant land to subdivide. Perhaps a factory is coming to town, and the land sits in a prime location for future development. Land with marketable timber, or timber to sell down the road, is another example. If it holds wildlife, consider leasing the hunting rights.

“People want to buy all sorts of land,” Stamper said. “The reasons vary, but most of the time, people want it because they recognize good opportunities.

Regardless of land type, most landowners strive to make money, or at least recoup their investment, with land purchases. Plus, they can enjoy recreational opportunities on that land while owning it. A Whitetail Properties land specialists assist in succeeding with this endeavor. They can help determine the best prospects and pathways to achieving goals.

Auctions vs. Listings

The land buying process varies significantly between making an offer on a listed property and securing one at auction. It’s important to know these differences between financing land bought at auction vs. listing.

With auctions, there are usually set timelines. Generally, buyers can’t negotiate these timeframes. Therefore, it’s paramount to attend auctions with pre-approved letters in hand.

“Timeframes are set, and therefore, you need to be prepared,” Stamper said. “You can’t wait until you’ve gone to the auction and have the winning bid. Start the financing process, and when a property comes available, your ducks are in a row.”

Naturally, you’ll want to visit the property and see the lay of the land. You’ll also want to conduct appraisals, inspections, title searches, and more.

“Oftentimes, people reach out [to me] a couple weeks in advance of the auction,” Stamper said. “That way, you have your financing in place. This gets you pre-approved before the day of the auction for the maximum you plan to spend. That way, you know what the loan and terms look like.”

Once you win the bidding, it’s time for an appraisal, title work, etc. This tends to be a 30-day process.

Conducting Due Diligence

Before making an offer, it’s good to conduct due diligence. Buying real estate is multifaceted, and numerous hurdles can impact the process.

Environmental factors are important to study. For example, flood zones indicate risk of rising water levels, which might prevent building, hinder agriculture, etc.

Soil tests confirm soil quality. The soil might be rich with nutrients and great health. Or it might be depleted and require extensive effort and resources to restore it to acceptable levels.

Mineral, timber, and other rights are either available, or not, with the deed transfer. Sometimes, these are sold separately. Or, they might have been sold separately in deals long past. Determine whether these go with the property, or not.

Although a more recent revelation, water rights are becoming more notable, too. Many land investors are purchasing properties not only for the land but also the water that runs through and under it.

Zoning restrictions also impact various elements of agricultural, commercial, industrial, historical, residential, and other real estate types. Study current and projected local zoning laws.

Although rare, knowledge of an endangered subspecies inhabiting a property can limit property usage, too. It’s yet another example of the importance of due diligence.

Another common question Stamper gets is if lenders require a survey. Typically, they don’t require a survey. However, if the acreage or boundary for the property can’t be determined by current records — such as county PVA maps, deeds, tax documents, etc. — the title company might require a survey. Therefore, it’s good to conduct research and ensure that current records align with acreage expectations.

Making the Down payment

The next phase of financing your dream rural property is making the down payment. Oftentimes, this is a significant challenge for potential buyers.

“A lot of people who want to buy and finance land have good incomes and credit scores,” Stamper said. “That said, sometimes the down payment is the issue. Fortunately, we can look at creative solutions. Perhaps that’s another property you can pull equity out of. That can bridge the gap with a down payment.”

Sometimes, people might only want a portion of a piece of property. A lender like Rural 1st can help walk people through the process. This might include surveying off the desired section of land, which is needed to split it up.

In other situations, the property might be too much for one person to tackle financially, but with a partner (or partners), it’s within reach. Therefore, buyers might choose to purchase land with family or friends, which minimizes each partner’s down payment and mortgage liability.

Of course, if there are more than two people on the loan, it can add additional hurdles. Despite that, Rural 1st is equipped to assist in bringing to fruition such an arrangement.

Financing Process Expectations

Generally, the financing process comes with predictable expectations. These are routine parts of the process that require your attention and understanding.

First, most lenders offer fixed and variable rates. The interest rate percentage, as well as financing terms, vary within these categories. Interest rate locks are also of note.

Of course, read through the loan terms and conditions to ensure these are acceptable, or even favorable. Determine payment scheduling, or set up autopay, to meet loan deadlines.

Finally, plan for closing costs. This will pay for appraisals, title work, processing fees, and more. The cost varies depending on purchase price, title insurance, and other factors.

Choosing the Right Real Estate Lender

A common mistake buyers make is, rather than relying on local real estate agents and lenders who know the area, they work with a real estate agent closer to them (geographically and/or relationally). Neither the buyer(s) nor their real estate agent has a full understanding of the property. At least, not like local land specialists and lenders would.

“Work with a local agent who actually understands the market,” Stamper said. “Work with those who understand the property, topography, and more. Just because it’s the right acreage, and within your budget, doesn’t mean you’ll be able to utilize the property the way you need to.

“We understand the ins and outs of financing rural property,” Stamper continued. “That’s what we specialize in. It’s not always cookie cutter. There’s a lot that goes into it.”

On the Rural 1st website, utilize the loan inquiry form. Submit basic information, such as the area (zip code), your phone number, etc. Then, an experienced loan officer familiar with your area will contact you. Typically, they reach out within 24 hours.

“We have the same dreams as the clients coming to us wanting to buy that land,” Stamper said. “We hope to be partners in the financing process.”