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Rural Land Financing Center
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Frequently Asked Financing Questions
·How do land and home mortgages differ?
·What mortgage products are available to rural real estate buyers?
·How do I go about financing a country home?
·What are the main sources of rural financing?
·How does owner financing differ from a traditional mortgage?
·What should I look for in a rural lender?
Helpful Articles
·Getting Started
Putting down stakes in the country takes work, smarts and money. Here's some helpful tips to help you get started.
·A Checklist to Buying Land
Things to know before signing on the dotted line.
·What Makes a Rural Area Hot?
Country is now more than cool, it’s downright hot! Find out what makes country spots the best.
·What Catches an Appraiser’s Eye?
Having a good appraisal on the land—no matter who it comes from—is a plus for any buyer.
·Look for What You Can’t See
Look beneath the surface because what you can’t see can hurt you later.
Frequently Asked Questions About Farm Credit
·Who is Farm Credit?
·Is Farm Credit a government entity?
·Who owns Farm Credit lending cooperatives?
·Is Farm Credit regulated?
·What makes Farm Credit different from other lenders?
·Are Farm Credit interest rates competitive?
·Do Farm Credit loan officers have any special qualifications?
Frequently Asked Financing Questions
How do land and home mortgages differ?
Land loans and home mortgages are normally similar, but land buyers often require longer terms and more flexible repayment schedules. This is especially true if the income earned from the land, such as the sale of agricultural crops, is the primary source of loan repayment. A lender that specializes in making loans for rural real estate is most likely to offer flexible financing.
What mortgage products are available to rural real estate buyers?
Both variable-rate and fixed-rate loans are available for rural real estate loans. Each type of rate product offers advantages, depending on the customer’s situation and market conditions.
In a high or falling interest-rate environment, buyers may want to consider choosing a variable-rate product. Variable-rate loans are generally more desirable for shorter terms. Farm Credit offers loans that are indexed to either the Wall Street Journal Prime rate or the 90-day LIBOR rate.
Fixed-rate loans are often preferred in a low or rising interest-rate market, but many rural lenders do not offer fixed-rate terms, especially for land loans. However, Farm Credit offers fixed-rate terms for both home loans and land loans.
For land loans, Farm Credit offers terms up to 20 years, and in some cases up to 30 years. For home loans, Farm Credit offers terms up to 30 years.
How do I go about financing a country home?
Your ability to find financing for a country home may depend on the value of the home compared to the value of the land, and the amount of acreage on which the home is situated. Some commercial lenders can finance home sites up to just 10 acres in size. Also, some lenders are restricted from making loans on property where the land is worth more than the home. Farm Credit is among the most flexible rural home lenders and can finance sites of less than one acre to sites of a hundred acres and more.
What are the main sources of rural financing?
Commercial banks, mortgage companies, insurance companies, private lenders (owner financing) and Farm Credit lending co-ops are all sources of financing for rural real estate. Some are more active in financing certain types of real estate, such as working farms, than other types. Farm Credit institutions finance the entire spectrum of rural real estate, from recreational property, to full-time and part-time agricultural operations, to country homes.
How does owner financing differ from a traditional mortgage?
It may be possible to negotiate more flexible repayment options with a private lender. However, buyers typically can choose from more products and options when they borrow from a traditional lending institution.
What should I look for in a rural lender?
Choose a lender who is knowledgeable and experienced in financing rural real estate. An experienced rural lender can offer guidance on agricultural-use tax exemptions, conservation easements, environmental factors and insurance sources that an out-of-state lender might not be able to. A local lender will be familiar with land values and comparable real estate sales prices in the area, and that could result in a faster loan closing.
HELPFUL ARTICLES
Getting Started
We asked people who make their living selling rural properties what buyers need to keep in mind as they set out in search of their dream property. Here’s what they told us:
·Be clear about what you want. Charlie Israel, a broker with Mossy Oak Properties in Birmingham, Ala., gives his clients a questionnaire that covers likes and dislikes. He also watches their reaction to the properties he shows them. For example, what are their thoughts about timbered property versus pasture, hilly versus flat, hunting and fishing or personal retreat? It’s critical that you, as the client, communicate these thoughts clearly to the realtor or broker. “The search process is often about eliminating what someone doesn’t like, as opposed to finding what they do like,” he says.
·Get acquainted with the property. Chris Martin, a realtor in Paris, Ill., has seen plenty of clients who think they know what they want. But as soon as they walk the ground, they decide differently. He says this is the best way to apply a solid dose of reality to your dreams.
·Be prepared to pay. Country land isn’t as cheap as it used to be. Martin says the value of even marginal farmland is rising sharply, especially if it’s suited for development. Not many years back, less desirable farm ground, like that owned by Martin, could be purchased for less than $1,500 per acre. Now that land brings up to $3,000 an acre.
·Don’t assume you can build on the property you like. If the property has been designated a wetland, for example, the actual sites available for a home on the property will be sharply limited. Here’s a good time to pay for your own survey. You’re going to need it to show county officials there is upland space on which to build a home or a barn and other outbuildings.
Here are more questions to ask as you consider properties:
·What is the drive time to work? You’ll want to look at this, plus how far the property is from town and even the nearest airport.
·How is adjoining property zoned? If the property is zoned for industry, retail or high-density tract housing, you have to ask yourself if you can live next to that kind of development.
·What’s the topography? Hills, sinkholes, rock outcroppings and other geological features channel the construction sites for all of your buildings.
·What access do you have to surface and well water?
·What improvements will you have to make on the land? Wells, septic fields, roads, fencing—they all cost money.
Used with permission, The Progressive Farmer, All Rights Reserved.
A Checklist to Buying Land
John Bates of Coldwell Banker in Chicago, Ill., is a successful realtor dealing in rural properties. He closes $80 million a year in sales. He is usually on the developer’s end of buying rural property, but he understands the thought process of buyers.
·Mind-set. Do you need to be near civilization? Country air is fine, but location is key to scratch the occasional itch for a restaurant in the city.
·Life stage. Put schools at the top of your search list if you have children. A country school with small classrooms is appealing. There are fine rural schools, but others rate low on the resources scale and high on the deferred-maintenance list.
·Access. Property fronting a hard-surfaced road is best. But access created for easements, pipelines, power lines and railroads is bad. Make sure wetlands don’t limit plans you have for a country property.
·Activity. What do you want to do on your acreage? Country living doesn’t mean life without rules. If you want horses, check out the zoning laws. Don’t forget to look for any covenants.
·Soundness. If you are buying land for a home, make sure the soil is suitable. As the Bible says—and we paraphrase—build your home on solid ground. For the health of your septic system, make sure the soil drains well.
·Future. Think carefully if you are buying property with visions of a retirement windfall. Zoning laws change.
Bates has a story about change. He was looking at a 62-acre property that appeared suitable for development. He figured he would have to pay approximately $26,000 an acre.
But most of the property, apparently to the owner’s surprise, had been rezoned as wetlands. Worse, the remaining piece of land had a water table so high that no home built there could have a basement. Bates pulled out. The owners eventually took $15,000 an acre for the property.
Used with permission, The Progressive Farmer, All Rights Reserved.
What Makes a Rural Area Hot?
It’s common to hear bad news about rural counties. Young people are moving away. Population is declining. Services are disappearing. You know the story. But it’s not true everywhere.
Country has always been cool. Now it’s downright hot. Here are the characteristics that draw newcomers to rural counties that are growing.
·They offer amenities. That would be scenery—lakes, mountains and perhaps historical significance. To some surprise, one high-growth rural area is the Upper Great Lakes. Why? Because they offer recreational access to outdoors activities centered on the lakes. The West saw its rural counties grow by 20% in the 1990s. The West and the South combined accounted for three-quarters of rural growth in the 1990s.
·They have access to the city. USDA calls rural counties close to cities “interaction zones.” High-growth rural counties interact with urban centers. They are influenced by urban economies and by urban social and leisure offerings. Forty percent of farms in the United States are found inside these interaction zones. They are prime areas for the newcomers.
·Farming is not No. 1. Growth counties are not necessarily agriculturally dependent. Of the 2,305 rural counties in the United States, only one in five is dependent on agriculture.
Used with permission, The Progressive Farmer, All Rights Reserved.
What Catches an Appraiser’s Eye?
Laws, zoning rules and conditions differ by region and state. Here are some of the things an appraiser looks for on a property.
·What are the zoning laws? Zoning determines what you can do with the property now, or down the road. Zoning laws tell you more than the restrictions that apply to your property. They also give you an idea of local intentions for land around your purchase.
·How much road frontage do you have? Short of that frontage being an expressway, easy access to property is generally a great advantage for property values. Unfortunately, it can also be a detriment if the county or state
limits access to your property from the road.
·Is it a wetland? The designation can limit the property’s value and your ability to build on it. Wetlands affect drainage. You’ll want to know if the wetland increases the potential for flooding on the property.
·Are the soils suitable for building? Knowing the soil structure provides answers to any number of building issues—can you build a basement, will the soil drain storm water, is it suitable for a septic system?
·We have our own example. When The Progressive Farmer built its first Idea House and Farmstead in 2003, we discovered a bit of sandy soil. The builder found he had to pour one footing 18 feet into the ground to support a corner of the home. It was an unexpected, additional expense.
·Is there development nearby? The closer you are to suburbia, the more valuable the land and the higher the taxes. Property that sells for $1,000 an acre, once surrounded by properties selling for several multiples of that, will bring higher property taxes to your door.
·There’s undesirable development. For example, your property borders a tree farm. The trees are a natural enhancement to the value of your property. But then those trees are harvested. Or more, the trees are harvested, and the owner decides to sell the property to a trailer-park developer. Had you known the potential for significant development, would you have bought here? This is a time when an appraiser can help you foresee a nasty turn of events.
Used with permission, The Progressive Farmer, All Rights Reserved.
Look for What You Can’t See
On the hunt for a piece of the country, longtime Arlington, Texas, resident Scott Richardson honed in on the Edwards Plateau area in what’s known as “The Hill Country,” not far from Austin. He and his wife, Martha, made the move in 1983. They learned some things about buying rural land along the way.
water—or, lack thereof. Texas water law includes a notion called the “right of capture.” This means that the water below a property is the owner’s water. That owner can pump as much of it as he or she wants, regardless of the outcome to the neighbor.
“We were told there were two wells on the property,” Scott says. “Naively, I believed this to be good news.”
But when he called a well digger—after the property purchase was complete—Scott found neither of the wells were high-volume producers.
What’s more, the well digger had advised the previous owners that they might want to reconsider building there for that reason. After additional homework, the good news (two wells) turned bad (two weak wells), turned good again.
“I found out that, quite often, the weak wells are fortunately the most consistent—even through droughts,” Scott says.
arrow—through the garden fence. The Richardsons live in an area where the land is divided into tracts of up to 100 acres. Many were bought for hunting, which Scott has no problem with. But even 100 acres allotted for the sport is a bit tight.
That “point” was made one day during bow-hunting season. “We found an arrow dangling in my garden fence,” Scott says. “A buyer has to either look for developments where there are hunting restrictions or know the risk. We’ve never had another problem, but we don’t get out on the land as much during hunting seasons.”
Gas—royalty or ruin. The Richardsons’ deed gives them 1/4 of 1% of any royalties earned from minerals on their property. They own the land, but not the minerals underneath. That wasn’t much concern when they bought the land; the nearest natural gas well was 15 miles away.
Now, 23 years later, sky-high gas prices have spurred more exploration and greater interest in tapping even weak natural gas deposits. The closest wells are now 4 miles away.
Used with permission, The Progressive Farmer, All Rights Reserved.
Frequently Asked Questions About Farm Credit
Who is Farm Credit?
The Farm Credit System is a nationwide network of cooperatively owned banks and lending cooperatives whose mission is to provide agricultural producers and rural America with a reliable source of credit at a reasonable cost.
Is Farm Credit a government entity?
No, it is a network of privately owned cooperatives.
Who owns Farm Credit lending cooperatives?
Farm Credit co-ops are owned by their borrowers, who also are co-op stockholders. The stockholders elect the board of directors who set policy and oversee management of the association. This ownership structure assures that a Farm Credit institution is accountable to its customer-stockholders, and decisions are made in the best interest of the customers.
Is Farm Credit regulated?
Yes, Farm Credit is regulated by the Farm Credit Administration, an independent federal agency, whose board members are appointed by the President of the United States. For more information, visit www.fca.gov.
What makes Farm Credit different from other lenders?
A major difference between Farm Credit and other lenders is that Farm Credit can return its profits to its borrowers, and it often does. Patronage refunds reduce the effective cost of borrowing for Farm Credit customers.
Are Farm Credit interest rates competitive?
Yes, Farm Credit’s rates are competitive with other lenders. And, when they share their profits with their borrowers through patronage refunds, Farm Credit’s rates are even more competitive.
Do Farm Credit loan officers have any special qualifications?
Farm Credit loan officers typically have extensive education and experience in agricultural financing, banking, business and/or mortgage lending. In most cases, they live in the community, often grew up in an agricultural or rural area, and have a good understanding of local land values. Some loan officers are also certified rural real estate appraisers.
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