Rural Interest rates higher

Patt · #21 08/23/10, 05:18 PM

I wouldn't get a loan through our local bank out here, they charge way more than the average. If rural loans come from smaller local banks I can see the interest rates being higher. We used a national mortgage company when we refinanced ours and got a very competitive rate.

goatlady · #22 08/23/10, 08:58 PM

Being a former loan officer the interest rates on rural land are heavily based on the fact that "bare" land values are extremely volitile and flexible. On a standard rural loan the Homestead is considered just the few acres surrounding the actual home and buildings and those improvements are what actually have a stable value from year to year. The "acerage" prices vary lots within the same counties and cannot be counted on as total collateral for the loans. Hence, the banks seek to cover potential land value loss by charging higher interest rates for "rural" properties.

swollen tongue · #23 08/23/10, 09:22 PM

so your saying that just the 2 acres around the house are what they loan on, even if it is setting on 40 acres? what happens when if they forclosed on it, would they take the 40 acres or just the 2 acres with the house and improvements?

salmonslayer · #24 08/23/10, 10:06 PM

When we were looking to buy our place we were pre-approved for an outrageous maximum amount through USAA and our credit score was excellent, our savings was more than what we were seeking to mortgage and the DW and I both had fairly high paying jobs with stability extending decades back. So we found our place and it was a fraction of what we qualified for and it even had a fairly new mobile home for the MIL on the acreage. Sounds great right? Well, the entire county we were looking at is zoned agricultural and USAA only loans on single family residential zoning (which they didnt tell us when we set the whole thing up) so poof there goes that financing option. So then we went to Farm Bureau Credit or something like that locally and guess what the new problem was...the mobile home. Seems that lenders dont like two residences on the same property and even though it wasnt going to be part of the mortgage it was a big problem. We went through the process but the main house had no functional electric or plumbing, it needed a new roof and windows and doors and my argument that it had a really cool barn didnt carry the water with the lender (ha!) so we ended up self financing.

I just found the process kind of amazing after having purchased and sold probably a dozen different properties over the years. In our case the main farmhouse was actually the structure in the worst shape but that is what they focused on and the other buildings, the acreage, etc didnt mean much and in fact they wanted the mobile home off the property or the property subdivided before they would loan on it. The upshot is we are now retired with a fraction of the income we once had and the house and property have received many improvements and the place is valued way higher than what we paid for it...including the MIL trailer where she is happily gardening and sewing and enjoying life. I once owned a small apartment building and had less issues financing that than I did buying our little homestead.