Thursday, March 19, 2015

The Land Hunt - Let's Start with Financing, Part 1

Monday, I gave you several things to consider before you start your hunt for a country property. I was surprised at the number of people who actually took it to heart. I was trying to be funny and only slightly serious, but I guess more of you would like to do this property thing than I thought! So if you haven't read my bits of country wisdom and considerations, go ahead and do it. That's really Step 1.

Now Let's Talk About Money

Money is the biggest hurdle most of you will encounter. Just like buying a house, you need to have your financing secured before you can close the deal. If you're not sure how much you can afford, go ahead and pre-qualify. You're not committed to anything. You're just getting the "yes" or "no" out of the way before you get your heart set on a little piece of paradise. If you know you'll qualify for a loan, then waiting is fine. Tammy and I waited until we found the property we wanted to buy. 

Whether you pre-qualify or wait, you need to know that not every bank is right for land loans. Small town banks get it. They do it all the time. Wells Fargo and Chase may not be your best bet. If you can finance in the same county you're going to buy in, even better. The local bankers know exactly how much that land is worth, and if it's worth a loan. Otherwise, check out Capital Farm Credit, and larger banks that specialize in agricultural and land loans. Tammy and I are using Round Top State Bank because our land is about 5 miles from that little, but powerful, and really local bank. 

What's up with this bubba banking?

1. Land rarely loses value. That's because God ain't makin' no more of it. Bubba bankers know that your land is golden; even if your credit score isn't.
2. Just like a house loan, the bank will run comps on the property. How in the hell will a banker in Austin know what a comparable piece of land looks like 60 miles away? 
3. What's a comp? Comparable value. In other words, if you're buying a $100,000 piece of land that compares to a bunch of $50,000 pieces of land, the bank will say, "no, forget it."
4. Them good ol' boy bankers also know you'll probably build a house on that land one day, and they know you'll come straight back to their friendly offices to finance that house, too. No questions asked.
5. And this is for me and Tammy. Bubba bankers say, "yes, ma'am." They're just nice people.

Land Loans Look Different

Yes. They do. I called around before we decided on a bank to finance our land. I already knew that land was not going to deliver the same interest rate as a house. The rate would be higher. It was just a matter of who would have the best deal for financing the land and then refinancing when we wanted a house. We went with Round Top State Bank. They offer land loans with 5 year Adjustable Rate Mortgages, better known as ARMs. We don't have a balloon note (NEVER DO A BALLOON NOTE!!!!! e.v.e.r.). We did this rather than a higher fixed 20 year rate because we know we'll build in the next 5 years. We are starting with the lowest rate we could find, and that's great as we develop our land.

Land loans also look kind of like a personal loan. So the paperwork is not as lengthy. Of course, we didn't borrow near as much as we would to buy a house. We're not talking high rollin', here. Here's what we needed, and you'll need, too.

1. 3 years of tax returns.
2. A few recent paycheck stubs
3. List of debts (mortgage, cars, credit cards, etc.)
4. The usual personal info, like social security and driver's license. 

Very quickly, a small town bank gave us a positive signal.

In my next post, I'll give you an example of the "Assets and Liabilities" worksheet we had to do to seal the deal. I think you should go ahead and do this before seeking loan qualification or even pre-qualification. It's a great way to get a solid picture of your own worth.

So until next time, start checking out the local, small town banks and farm credit unions near the area you want to buy land.

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