Loan for buying land

Stuntman Autoworks

Stuntman Autoworks

Instigator of things
Joined
May 6, 2010
Location
Sanford NC 27330
We sold our house a couple months back so we could buy some land and build a house. We have found a nice property that is coming up on auction that we want to try and get. I have called around today to get rates and talk about pre approval and nobody seems to loan to buy land. What's the reason for this and is there anywhere to go that will loan the money?
 
Pre-Approval for just land would be pretty risky from a Bank's perspective, when you buy at auction, it's still very much up in the air as to if the land will be suitable for the purpose, as it may not Perk, Be suitable for a well, or have utility access... Might try getting a personal/signature type loan for the land if you can, then when you go to build, get it rolled into the construction loan/motgage to build the house..
 
ncsutj said:
Carolina farm credit if they are in your area.

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I second these people. I wish I would have went this route when I was looking. But I had to find property with a house on it. But I’m dealing with Farm credit on financing a pump truck and they are extremely easy to deal with. They cater to farm/rural living.
 
ncsutj said:
Carolina farm credit if they are in your area.

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There is one right down the road but they were even kind of iffy on the phone.
It does have power available and it will perk so I'm kind of surprised that I hit such a wall getting a loan. I would say buy land and they would say we dont do land loans and that was it pretty much.
 
The issue behind what you are running into is this.

People think of buying land and building as similar to getting a mortgage on a house. Unfortunately to a bank a land loan is closer to an auto loan than a mortgage. The federal backed mortgages (Fannie and Freddie) do not loan on raw land. So for a bank to loan on land they have to hold and service that loan in house. Basically your local banker isnt worried about loaning you money on a home ebcause if something goes wrong their hide is covered by the federal government AND they can foreclose and re-sell your house.

This doesnt apply to land. Their only recourse is to retake the land.
Then there are loan position issues. Most banks who loan on a construction loan are going to demand on first position, which further hurts the process.


There are options. But they arent concrete like mortgage options. Thast probably why you are sensing them being iffy. It will be ALL about you and not about the property.There isnt a federal agreed upon standard for land sales like there is for home sales.

If you are financing through a traditional bank/lender expect a minimum 25% down payment required. A Maximum term of 20 years. And an interest rate about 1% (yes 1 whole percent) above current mortgage rates.

Alternately you could look to hard money lenders, but the cost of money will be high there. Probably 12-15% currently. The play there is to secure the loan through hard money, get title in your name. Get under contract with a builder and then take all of that to a traditional lender and convert it to a construction package.
 
When I bought my land, I paid cash for ten acres, then used that as collateral for an equity line to buy the adjoining 8 acres. That was in 2007, and the rate was around 4% initially (first 2 years I think) then adjusted to 6.5% (keep in mind, CD rates were 6-7% back then also). Since you sold your house, did you have any equity/cash come out of it? I'm about to start building again and have been looking in to using a HELOC (home equity line of credit) for the construction phase since there is significantly less closing cost, no PMI, and no bank looking over your shoulder for the construction process. Not sure if that is helpful in your situation though.
 
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I ran into this both times I wanted to purchase land .on the first tract I had the cash to buy it out right but didn't want to be broke, that was 22 acres. I ended up at first bank at about 5.5% interest and 25% down. I ended up selling that and purchasing a 200 acre tract and what a damn headache. Nobody was even interested in talking to me about it .Carolina Farm credit was no help .I confused the guy I talked to the the point where he kinda just threw up his hands. I hand letter from multiple timber companies for offer on the timber and I would be selling it at one point or another and applying that to the principal. He did not get this at all. Hardly any other bank would even talk to me about land. Then I found a guy at Fidelity. He gets land understands the land/timber business. Once we started talking it was a flawless transaction .Hell I just borrowed $20k last week to buy a piece of equipment with 6-7 emails and about one phone call. Took about 20 mins to sign the papers and get my check once I got back in town .I said all that to say this, if you find a good bank person feel fortunate . They are few and far between now days it seems, think their hands are just tied.
 
This is good info. Been thinking about financing land in AK to go bigger. Ill ahve to rethink that plan.
 
FWIW land can be legally processed as a commercial investment vehicle. If you have a commercial banker or banking relationship through your business those people can do land loans.
 
like others have said, try the farm credit. much easier to get a land loan thru than a bank. bank you will have to put more down up front. like others have also said, it is harder to borrow money on just raw land. I have called the farm credit up here before and they seemed easier to work with and wanted to help. I ended up just using some equity in my house to purchase the land I have. I am trying to buy the farm next to me and will probably use farm credit. jesse :beer:
 
I know it’s a little far away but I’d recommend looking into Union Bank. That’s who I use for my construction projects and they are really flexible on options and getting creative when need be. They will do land but need 20-25% down and usually no longer than 10 years. They also do agricultural loans so you can get equipment etc for “agricultural” use on that land pretty easy as well.

They would be my first stop for buying land. I’ve looked into Carolina Farm Credit and they are OK and provide some options as well.
 
If you can find someone to do a owner finance that might be an option. When I bought my land in 2016 I got lucky and the guy had put the option for owner financing. Went through a lawyer and did all the paperwork, deed is in my name, just send him some money ever quarter. Financed 53 acres for 10 years at 4.5%, I couldn't complain with the terms that's for sure. Stipulations were no logging, no mining, and no drilling. So no drilling for oil and no digging for gold for the next 8 years haha.
 
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