Newbie here. I have a few questions about purchasing land.

[Hoytvectrix]

I'm currently saving like crazy with the hopes of purchasing land next year or the year after. The two pieces that are the most likely targets both touch the family farm in Missouri and both have their own advantages and disadvantages. What I am wondering is, what is the typical amount of money required in a down payment for property? I have read that it can vary anywhere between 20 and 50%, which is a crazy amount of variability. I ultimately know that I won't really know for sure until I got in an speak with some loan officers. I am just taking this time to introduce myself here, and to see if there is anybody around that would know from experience. Thanks!

 

[SwampCat]

I think 20%. I have paid 50% and got no better interest rate than had I paid 20% down.

 

[Belchertown Bowman]

A bank loan officer should be your first step.

 

[Tree Spud]

I'm currently saving like crazy with the hopes of purchasing land next year or the year after. The two pieces that are the most likely targets both touch the family farm in Missouri and both have their own advantages and disadvantages. What I am wondering is, what is the typical amount of money required in a down payment for property? I have read that it can vary anywhere between 20 and 50%, which is a crazy amount of variability. I ultimately know that I won't really know for sure until I got in an speak with some loan officers. I am just taking this time to introduce myself here, and to see if there is anybody around that would know from experience. Thanks!

If you are trying to buy vacant land away from where you live, very hard for your local banker to assess value. Banks don't like un-measurable risk like vacant land that they cannot assess and get a reliable appraised value. In short, they want to know if you fail to make payments, whatever they repossess is worth more than what they have loaned you. They also don't want to be in the real estate business trying to sell a remote property. Vacant land also makes them nervous because of sketchy land condition report history.

The interest rate and you ability to get a loan is impacted by your credit score, annual income, and debt. Check out you credit report to see if there are any issues. Pay off any short term debt. Too many credit cards is also a red flag, get them down to 2.

A good step would be to meet with a couple of banks in the community you want to buy property in and go through the process to see what you can qualify for load wise.

A larger down payment also shows them you are all in and less likely to walk on the loan.

Good luck!

 

[yoderjac]

Around here, It is pretty hard to get a loan for raw land. You can get them but the down payment is high and so is the interest rate. As Spud says, it is hard to estimate the value of raw land and if the buyer defaults, the financial institution gets stuck holding the bag. This does not mean that you cannot get a load if you have a good credit rating, but it is not cheap money.

When we bought our pine farm, rather than financing it, we formed an LLC since several of us were going in together. We then had each member of the LLC secure their own financing rather than using the land as security. In my case, I refinanced my house and took cash out. Because interest rates had dropped substantially and the value of my home had gone up significantly, I could get a significant chuck of cash at a better interest rate than I had been paying on my home. This may or may not be a good approach in your case, but consider other methods rather than using the land as security.

Thanks,

Jack

 

[Apple Junkie]

Best plan is to save like crazy, pay cash.

If you do take out a loan, make sure the money you pay on the mortgage is not money you need for your normal living expenses. Lastly, remember there are other costs associated with owning a piece of property like County and School taxes, insurance, equipment... and apple trees. Patience.

Regardless, stick around here and contribute your thoughts to the forum. Keep us posted and good luck!!

 

[mtholton]

In Western WI, it varied wildly by bank (prob talked to 10 banks?). Shop around, I saw huge differences in what they offered in terms of options, but also down payment requirements etc.

 

[Dukslayr]

I live in Missouri and have bought two different farms in NW Missouri - one had no income and one had significant income. I have a couple of thoughts and you’re welcome to message me to discuss more as well.

First, as was stated above, if you’re going to finisher you should start shopping rates. It’s tough to do with normal commercial banks (like US Bank) because they generally just aren’t familiar with doing loans for vacant. I you’re in the sticks, like mine, I would suggest connecting with local small town banks and FCS. Generally speaking you’re going to need a 20% down payment. I personally would not buy land if I couldn’t put at least 20% down.

I would also sift through any credit unions you may have access to, either through your employer, your parents (or grandparents) employers or service time, etc. Both of my farms have been serviced through a credit union. My credit union will willing to loan 80% of appraised value; most are only willing to loan only 80% of loan value.

Long story short, you should be able to get someone to fund your loan for 20% down in Missouri, provided your credit is good and you have good lender. If there’s income on the property it helps a lot, as does you asset to debt ratio.

 

[SD51555]

Skip the banks. Go straight to farm credit. I just did one a couple years back. 20% minimum down, 35% for best rates. They operate under special federal protection and with a co-op ownership structure.

Their rates can be good, you may qualify for dividends, and money will never be as cheap as it is now. Factor in inflation, and money is basically free as long as you're not buying into an asset bubble. I am in the MN/Wisconsin/Illinois one, so I can't speak for FCS in MO.

https://www.myfcsfinancial.com/loans/hunting-land

 

[cavey]

In Western WI, it varied wildly by bank (prob talked to 10 banks?). Shop around, I saw huge differences in what they offered in terms of options, but also down payment requirements etc.

First land I bought... 300 bucks earnest money 5000 down payment; 2nd was a handshake and no down payment. Last and biggest chunk assessed at 380K and I paid 256K for it ... no real down payment (I think we threw 1000 bucks at the seller to get it started) and then just started making payments. So it can very widely - I was lucky to have immediate equity in value with the last property so that helped. They dont make any more land and buying land that adjoins property often only happens once in a lifetime. Im going to say it will be the best move you will ever make in buying land... Your only regret later in life will be in not buying more.

Welcome to the forum and get it done.

Its a bit tougher to get loans ironed out these days but your seeing really good interest rates ....

 

[Boll Weevil]

One more thought that I haven't yet seen above; leverage an already owned piece of property at collateral. My first piece of property was 80ac I paid for in cash..owned it free'n clear. In addition to cash on hand, I then used that land as collateral on my next piece of ground (that I totally stumbled onto). If you're thinking about adding ground over the years, might think through what that looks like financially.

 

[bwoods11]

Buying land with CRP or crop rent is nice as it will help make the payment, pay taxes and it’s a natural draw for deer and turkey.

 

[Hoytvectrix]

This is all great information. Thanks everyone! I'm really liking what I see in this community so far.

The back story for those interested, is that there are a couple of pieces of property that touch my family farm in Northern Missouri. Property 1 is about 120 acres of mostly pasture and has a dilapidated home on it, electricity hook-up but no running water. Property 1 owners are looking to sell soon, and we seem to have a good relationship with them. Property 2 is about 75 acres and is about 50% pasture / 50% timber. Property 2 is much better for hunting and shares a considerable amount of property border with our farm. Property 2 owners are not quite as open about selling, but we are optimistic they will sell if they think the price is right.

I'm probably most excited about property 1, if nothing more than to have a blank canvas to improve over the rest of my lifetime. Regardless, I still have the family farm and am looking forward to sharing some of the things with you all that we've been working on there towards improving habitat. Thanks again for your advice!

 

[No-Tox]

Skip the banks. Go straight to farm credit. I just did one a couple years back. 20% minimum down, 35% for best rates. They operate under special federal protection and with a co-op ownership structure.

Their rates can be good, you may qualify for dividends, and money will never be as cheap as it is now. Factor in inflation, and money is basically free as long as you're not buying into an asset bubble. I am in the MN/Wisconsin/Illinois one, so I can't speak for FCS in MO.

https://www.myfcsfinancial.com/loans/hunting-land

Yep, Farm Credit institutions are the way to go for buying land. I have mine with Farm Ag here in Texas for about 9 years now. Even back then, it was good rates and since it is a co-op there are dividends paid out at the end of the year. Every year I get a check that amounts to about one monthly payment.

 

[Someday isle]

When I bought mine - which is a small property, so not as big a dollar amount as some. I only paid $72,000 for it. I had more than enough money in investments to cash but was also living in a house that was almost paid for. My options were to get a loan for vacant land or take the money from investments. Instead I chose to do a Home equity line of credit (HELOC) at a low interest rate and leave my investment savings alone. The HELOC has since been paid off but I immediately owned the land outright while effectively just increasing my house payment. I believe the tax benefits of A HELOC have been changed with the new tax code though. I’d make an appointment with a couple different lenders and just see what options exist for you and your current financial situation. It’s worth getting some different opinions. Remember, they’re in the business of making money and they want your business. If it’s doable for you in your financial situation they can help find you options. Just talk to more than one institution. I’d suggest consulting your financial planner as well if you have one.

 

[spaniel]

A lot depends on your financial goals. If the property in question has no earning potential, and you are taking a loan, you are likely losing money on the deal due to the interest payments. If there is income potential the price is likely much higher, but given what you can put down perhaps it makes financial sense, given whatever goals you have.

I bought 58 acres this spring. I started by looking for land which was a mix of woods/hunting ground and ag, so I could rent the ag to cover the taxes/interest. Problem is around here any ag land is $10K/acre, and non-farmable land is more like <3K. Given what I was looking to do, I either had to buy a pretty small tract of farm land or go to completely non-farmable. I chose the latter and got the 58 at ~2300K/acre. The prior owner had a mortgage but part of my negotiating leverage was that instead of putting a down payment as I would have to have had to do for ag land, I paid cash. This transaction had been a decade in the planning.

 

[buckdeer1]

If they are wanting to sell soon you may want to discuss it now,maybe see if they want to finance it for you.Maybe pay a certain amount then agree on a balloon payment after 5 years or 10 years.I just bought another 30 acres that I wasn't expecting to buy but it bordered my farm.I looked at just paying out of investments but I could borrow the money for less interest than what I was making as investments.I paid 15 % down.I have had 2 escows set up with land owner and this should actually work better now with banks paying almost nothing for interest on your money.Check farm credit and a couple banks.

 

[Bucktown]

Congratulations on embarking on the land ownership journey! Quick thought for you....your loan length will be shorter than what you typically find on buying homes. You should assume the max loan term will be 15 years. As others have said, get yourself 20% down and 1.) talk to the current owner about a land contract 2.) find a good local credit union 3.) talk to your local farm credit institution.
Under the category of “for what it’s worth” Im closing on a property Thursday. 4.25% fixed, 15 yr term. Going with 35% down, but could do it at the same rate for 20% down.

Keep your deal moving along, these rates won’t last forever. Good luck!

 

[Jordan Selsor]

Skip the banks. Go straight to farm credit. I just did one a couple years back. 20% minimum down, 35% for best rates. They operate under special federal protection and with a co-op ownership structure.

Their rates can be good, you may qualify for dividends, and money will never be as cheap as it is now. Factor in inflation, and money is basically free as long as you're not buying into an asset bubble. I am in the MN/Wisconsin/Illinois one, so I can't speak for FCS in MO.

https://www.myfcsfinancial.com/loans/hunting-land

SD gave great advise! FCS has been an awesome resource over the years. Ben Davis at Farmington Mo branch has become a friend. Believe they prefer 30% down. Wasnt long ago I was in your shoes calling Ben prolly bugging the crap out of him with 100 questions a wk! haha. Anyhow, Their rates smoke local banks and the co-op ownership dividends makes it even sweeter. Another cool thing is you can refi your loan at any time for $200. This is how I paid my first farm off in under 5 years. I would save my money then refi the loan with a big down payment each time. This lowered my balance down in a hurry and lowered my payment as well, which is good for if a man ever fell on hard times.
Good luck with your land purchase. No better investment in my opinion.