Bare land and mortgages. What are my options?

MawKettle · #1 02/18/08, 05:02 PM

When DH and I were trying (unsuccessfully) to obtain a mortgage on raw land, we learned a few things:

1. No one is interested in parcels bigger than 40 acres.
2. Power to the property line is a deal breaker (if its not there).
3. Documentation requirements are VERY stringent.
4. Your credit better be pristine.

Having said that - try the Farm Bureau. They're nice folks and they lend in almost all 50 states!

gunsmithgirl · #2 02/19/08, 10:35 AM

I financed mine thru First National. I had to put 20% down and financed the rest for 5 years, but they gave me the option of stretching it out 20 years. They didn't have a problem with the fact that the closest power line is 3 miles away. My credit was not bad but not great either because I have never took out a loan for anything before, they said I had no history. But my interest rate was reasonable compared to what everyone else wanted for vacant land.
It took me a lot of calling around to find the best deal on vacant land financing but I eventually found it, just keep looking & good luck!

Gresford · #3 02/19/08, 02:56 PM

My wife and I are currently renting. Our ultimate goal is for us to one day build and own a homestead away from the city. (We live in Seattle now and we are looking to go to Clallum county, for those who are familiar with the area).

In a few months, we will be looking to purchase something. One option that we have considered is to get a loan for a tract of land and continue to rent as we prepare and improve the land for our future.

This seemed like a great idea until I researched this option further and found out that mortgage lenders seem to be less willing to lend money for raw land. Is this true? What are our options and chances of procuring a loan for such an endeavor? Any help and/or experiences would be helpful.

(Our second option is to buy a condo or house and re-visit this idea in a few more years once we have gained a bit of equity on that property).

Thanks!

RiverPines · #4 02/19/08, 03:10 PM

You have to go with a land loan. Its different than a house loan.
Thats what we did.
Our house (mobile home on a foundation) has no value. So we bought the land on a land loan and the house was included. LOL

A land loan can be just like a house loan, 30yr fixed and such.
The difference is down payment and interest.
We had to come up with 20% down.
The interest was 1/2 point higher than an equal house loan.
You also have to pay for all the closing cost too.

For us it worked great.

Gresford · #5 02/19/08, 03:15 PM

Was your home on the land when you bought it or did you install it there once you purchased the property? What do you mean by the home having no value?

Thanks!

jassytoo · #6 02/19/08, 03:16 PM

All the land we have bought has been with an owner contract. Its hard to get a mortage for bare land. Most people selling bare land will know that and are usually willing to do an owner contract with a good size down payment. The bigger the better. The interest rate will probably be a little higher too.

Donkey · #7 02/19/08, 03:25 PM

i read somewhere that one should have at least 50% before financing the rest

kwagner21 · #8 02/19/08, 03:36 PM

sometimes you can also get a loan from a bank that specializes in farm loans. that is what we ended up doing. banks don't put any value on the land (just don't understand that) which is why they don't really like those loans. the farm banks are used to people placing the value on the land and look at it very differently. might be worth talking to them.

sisterpine · #9 02/19/08, 03:39 PM

Check with Northwest Farm Credit Services, I hear tell they finance raw land. sis

RiverPines · #10 02/19/08, 04:09 PM

Quote:

Originally Posted by Gresford

Was your home on the land when you bought it or did you install it there once you purchased the property? What do you mean by the home having no value?

Thanks!

Yes it was here when we bought it.

Its a trailer that was so neglected it had no value. Old mobile homes dont hold value, especially when they are over 10 years old. Thats how it is here.
The land was worth more than the trailer so we got a land loan. When there are no buildings that have enough value for collateral, the land is the only option left for collateral, hence a land loan.

Plus here, a mobile home is not considered a house. Its a title property not a deeded property. Only the land has a deed.

joseph97297 · #11 02/19/08, 06:16 PM

When we purchased our land, we went to 1st National Bank first, and at first, they said no problem. Tract was $32,000 and we were going to put down $8,000. Then they inspected the land and said we had to drop at least $10,000. Wasn't in our budget, so looked for ways to get another bank loan.

Went with a local bank, where the owner, was the president, who was our loan officer. Told him that the land was $32000 and what we were putting down and he almost signed the papers there, was a no brainer.

Check around with the local banks, better deals and nicer people.

Joseph

Tsadiyq · #12 02/20/08, 01:02 AM

Hmm - lurking here so I can keep up with this thread for more information! :0)

I'm looking to buy raw land so...

hfwarner3 · #13 02/20/08, 07:18 AM

I have been talking to the credit unions. We have 3 that we can belong to (one through Cobb EMC, one through church, and one through my wife's part-time job) and two of the three will do land loans. They are willing to finance 60% of appraised value or selling price, whichever is lower but I have been told that another credit union that I am looking into does 75%.

I have also started looking into hobby farm loans with Janus AG Finance.

Since my wife and I are both veterans, we at least have the possibility of a VA Rural home loan as a last resort.

I hope that helps with some ideas.

Wolf mom · #14 02/20/08, 10:44 AM

Yes. raw land is harder to finance so....

when you make an offer on the land, ask the seller to carry the mortgage. Do not do a land contract as you may want to put buildings on the property.

Tell him the benefits to him are:

1. he gets the land back (plus all your payments & down payment) if you default.

2. he gets the interest (usually higher than a commercial loan) on the loan, therefore he's getting more for the land.

I've found that if this is the way to go for you, don't low ball as that'll make the seller not want to deal with you.

Plan on refinancing commercially in a few years. Banks seem to be easier on land financing if it's a refi & you've got a history of paying on the land.

EasyDay · #15 02/20/08, 11:09 AM

It depends on where you are.
We still lived in VA Beach when we bought our ozark property. No one in the VA Beach area (including Navy Fed Credit Union) would finance raw land.

Any of the banks here in the our area finance raw land because there is so much of it around here constantly changing hands.

MN Gardener · #16 02/20/08, 02:59 PM

I would check with the local banks, usually land loans do not get sold on the secondary market and must stay "in-house", which is something that most local banks do. They are higher risk loans and require a higher downpayment, good credit history and a good employment history. They also have a higher rate then most home loans and are sometimes on ARMs or Balloons. I would also check with the people that you are buying from, see who currently holds their note and call their lender to see if they will do the financing for you. You can also ask the current owner if they will do owner financing like Wolf mom suggested. If you do ended up doing owner financing make sure you talk to a real estate attorney to draw up the paperwork and go through the pros and cons of owner financing. If you are not working with a real estate agent (I do suggest that you have your own) and do owner financing, I would suggest having an appraisal done to make sure you are not paying too much for the property.
Also, are you going to build right away? If so, maybe you need a construction loan. Either way, get in and talk to a few banks to see what they will offer.

Hoop · #17 02/20/08, 03:27 PM

Getting a loan for vacant land is not all that different than getting a loan on a house, car, boat etc.
If you have a decent income, a down payment, and good credit, you'll have no problems.

Financial institutions have but one objective, to make a return off their loan. In the event the loan goes bad, they want to be able to quickly dispose of the land. This makes the "no electricity" thing undesirable in many locations.

I simply can't imagine any seller that is eager to sell, not wanting to sell on a land contract, with a balloon payment in say 2/3 years.....unless they really need the funds NOW.

RiverPines · #18 02/20/08, 03:29 PM

Oh yeah, check banks not mortgage companies.

We got our land loan from our bank that we have our checking accounts and stuff at.

quietstar · #19 02/20/08, 09:07 PM

I think the problem financing unimproved land compared to a home is something bankers call "assigned risk" Lender experience has shown that if a family has a note on the family dwelling, and another on a raw land tract when a job is lost, or income drops, the house note is much more likely to be paid. Owner financing is a good way to go. I like a title search anyway and an "on or before note". Good luck...Glen

EasyDay · #20 02/21/08, 05:09 PM

Quote:

Originally Posted by Hoop

Getting a loan for vacant land is not all that different than getting a loan on a house, car, boat etc.
If you have a decent income, a down payment, and good credit, you'll have no problems.

This is not true in all areas, as I posted before. At the time, I was making "stupid" money, had plenty for a down payment and excellent credit. Some banks just simply won't do it. They don't feel they can turn it around fast enough if you default.