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How To Finance a Land Purchase

sales@mossyoakproperties.com

Over the past 20 years, Mossy Oak Properties has helped countless first time land buyers purchase their first piece of property.  The satisfaction that comes from helping folks realize a lifelong dream to own land is immeasurable, even if the journey with nervous and seemingly apprehensive clients has its twists and turns. 

Land specialists exist for a reason: to help buyers and sellers through a process that has intricacies that are fundamentally different than the residential transactions many have a familiarity with.  It is with first time buyers and sellers that the need for quality representation is multiplied.  Simply put, “not knowing” can cost buyers and/or sellers money, and possibly missing out on opportunities.

A question that often comes up with first time buyers is “how am I going to pay for this?”  The question is a fair one, because many first time buyers do not have a cash reserve or even excessive wealth for that matter, meaning financing will be necessary.  The positive is that land specialists typically maintain a close relationship with lenders in their service area that are either specialists in rural land financing, or have a strong capability to extend rural land financing. 

The Farm Credit System is one such institution that has specialized in rural land financing across its footprint since 1916.  The solution they provide for rural land buyers is unique due to their knowledge of land and shared outdoor lifestyle, as many who work in the Farm Credit System have a strong farming or land background.  Just as working with Mossy Oak Properties offers the comfort level that comes from a shared lifestyle and passion for the outdoors, working with Farm Credit System or other niche institutions offers the same advantages.  

“Farm Credit lenders are just like Mossy Oak Properties land specialists,” said Jamey Nicholas, Regional Vice President with Southern Ag Credit in Mississippi.  “We live this lifestyle, and were raised out in the country, making us familiar with hunting and recreation.  Many of us are farmers also, so we know why our clients are so passionate about purchasing land.”

Per Nicholas, another attractive aspect of Farm Credit banks is that they can handle the entire lending process in-house.  “Farm credit banks are a one stop shop in that we are not ordering an appraisal from an outside source like a commercial bank might.  We take your deal from start to finish and help you through the entire process.”

Getting Prequalified for a Land Purchase Loan

Nicholas explained that the pre-qualification process is the first step any serious land buyer needs to take.

“Prequalification is a pivotal step in the land buying process, because it allows you to figure out what you can truly afford.  It is an easy process that begins with meeting with a local Farm Credit bank that specializes in financing land. They will want a financial statement from you with some recent income information.  They will also request some form of verification of your liquid accounts, with the purpose of that being to know what you’ve saved up and how much you can put down. The standard land deal is at least 20% down.”

Nicholas continued by saying, “Once prequalified, you can then have confidence in knowing your budget, as well as letting your land specialist and their prospective sellers know you are a capable buyer.  In the case that you have identified a piece of land you wish to purchase but have not been prequalified, you need to come to a Farm Credit bank to start that process before you proceed forward with making an offer.  Nothing could be worse than having an offer accepted, only to realize you were unable to receive the necessary financing.  It is much better to know your limits on the front end.”

Appraisal, Title Work, and Closing

Once a client is prequalified, he or she can begin search for a property that suits their needs.  In the event that a property is identified, the client will work with their land specialist to submit and offer, and once that offer is accepted by the seller, the lender will spring into action.

“Ordering an appraisal of the property is the first step after an offer has been accepted, and a deal is set in motion,” said Nicholas.  “The purpose of an appraisal is not only for the bank to be sure that it is properly collateralized, it is also to make sure you are not offering to pay a price above the fair market value of land in that particular area.  If a property appraises for a value equal to or greater than the purchase price, the loan will be approved.  If the property appraises for less than the purchase price, the buyer may be required to put more money down or pull their offer and offer a price that is equal to or greater than the appraised value.”

If the conditions of this step are completed, a title search-typically conducted by local attorney- will make sure the title is clean and that there are no clouds on the title that may impact a buyers’ ownership claim to the property.  “Things such as easements or other undisclosed parties on the deed can cause problems,” said Nicholas.  “A title search will give the buyer a piece of mind that he’s purchasing a property without any issues.” 

Once those things have been completed, a closing date needs to be set.  At closing, the lender will submit the loans’ funds into the closing attorneys’ escrow account, which will then be distributed to the seller or used to pay off any mortgages the seller may have on the property being sold.

Nicholas said that while this entire process may be daunting to a novice land buyer, enlisting good help can make it a positive experience.  “So many first time land buyers make the financing process harder than it is.  I know this process is routine to us, but it is much easier than buying a house.  Remember that just as land specialists exist for a reason, land lending institutions do as well. This is all we do, and we know how to navigate this process and any issues that may occur.”

For more information on Southern Ag Credit, visit www.southernagcredit.com. For information on the Farm Credit system, visit www.fcsamerica.com.