loan for land where to start?

Loan for land/construction loan..... I have spent 4 Hrs today calling banks to look into what I
Could get approved for, Wow what a black hole. The banks in my area only give loans for property
with a pre existing house on it, Bank of America and wells-Fargo, seemed to be saying they wont
give me a loan for the land until I own the land I need the load for in order to buy. Then they would only
lend me 55% of the value of the land after the appraisal and I have 5 years to build a home.....I live in MD
and I am looking at land in Mineral County West Virginia. How did you get pre approved for land and home construction?
With what bank did you do this and do you recommend or not recommend them. I am looking at 30-50 acres of land
to raise a small amount of livestock, build an alternative house (probably shipping containers) build a pond, hunt and for recreation.
Mineral County is near where I work Cumberland MD so thats why I am locked into that.

Thanks

how much land are you looking to buy?  in michigan you can buy for under $1000 per acre.  you may not have to take out a loan if you can save up a few thousand bucks.

I am not American so I can't help you with that, BUT: I would consider buying land with a house on it. Why? First even your eco friendly house will have much more environmental impact than if you use one of the existing homes (and America really seems to be awash in houses so why concrete even more landscape?).
Second you simply move in and then you might change the one or the other thing. But if you build a house (and you don't save much money if you do it yourself) you have double costs for a year or so,  you rent a house while you built the other.
Third my guess is that you get your loan much easier, because the banks see the above problem as well. And a house with land is always cheaper than buying land and building a brand new house.
Fourth: if you build a house you have so much to think of that you have no time to develop your land and that's what it's all about, worse if you built yourself. The land should be the focus and that's more than enough work.
The times are not really very good and the next financial crisis might be around the corner. I would buy something you really can afford inhabitable house and land and start straight away to work the land.
Bear in mind what would happen if you loose your job.

Personally, I think it's foolish to buy land on a mortgage unless you intend to make your living there.  If the bank will only give you 55%, then in my opinion you should scrape up the cash for the rest.  Taking out a large mortgage for a recreation property is just not a prudent financial move, in my opinion.


<<<<< bought land for cash

HMMM I was seeing as wise a finical move? I rent a house,  it meats but does not exceed my needs for shelter. Getting a 100,000 loan or line of credit for buying land moving there and building would put my monthly payments at almost half what I pay for rent. I have worked on a construction crew building houses for many years while in college so I no what I can build and what it will coast, as well as working as a Forman on a farms,  so I feel there would be plenty of work but that Im up to it. I just found it odd that I can walk into a bank give them my background salary and credit check and get pre approved for 200,000 for a home, but yet have problems with trying to get the ball rolling on a loan for land that would be 40,000-100,000. It would take me 8-10 years to save up 100,000. but in the mean time I would be paying twice for rent, vs what I would be paying off on a loan.

I was not able to get a loan for land, so we saved up the money for it by living really frugally for about four years. 

Fishon, I'd look for an owner-financed deal. Lots of people are having a hard time selling, see if you can find someone willing to deal with you directly, and avoid the bank.

jacqueg wrote:
Fishon, I'd look for an owner-financed deal. Lots of people are having a hard time selling, see if you can find someone willing to deal with you directly, and avoid the bank.

that's a great suggestion.  Land contracts are often a wonderful way to go.  Given the crappy real estate market in america today and fewer farm kids returning home to keep the family farm going, it might be pretty easy to find a farmer willing to do a land contract.

you can schedule a lump-sum payment in 10 years.  In this way you would make regular monthly payments with an agreement to pay off the whole balance with a land contract or your own cash savings in 10 years.  If you're able to save the money, as you say, in 10 years, you could pretty easily make the payments and save up the cash to pay of the balance.

Another point to consider is that you may need to check out agricultural loans secured by the federal government (USDA?) and FHA loans that allow for building and renovation to be included in final ticket price of the loan.

I've bought twice with "Owner Financing". That is the previous owner held the note rather than a bank. Better rate for both of us. I paid a large up front down payment in each case that let him pay off his existing remaining debt. Then he got a residual income every month. This made it so he also paid less in taxes since he did not get the money all at once. It was a win-win for both of us. Bank lost out totally.

Right at this moment banks are being extremely tight fisted. We shouldn't have bailed them out. They just wasted our $3T.

Seriously in the current economy I wouldn't go into debt for ANYTHING.  Can you scale back your plans a bit to what you can afford to pay cash for, and then maybe later, if things improve, add on more land, or sell and buy a bigger place? 

Kathleen

If you have the means to survive for 6 months off savings after you buy the land go for it. Now is the perfect time to buy property, many people are getting loans fixed (never ever ever get an adjustable rate, ever) at less than 3%. Since inflation has been steady at 4% for 28 of the last 30 years it's a safe bet the Fed is going to hold it at that. If you can get below 4% inflation will pay your interest.

Now is the best time to buy. I bought land in previous recessions / real estate crashes. What people tend to forget is these are cycles. They happen over and over again. When the high times come, don't live high. That is the time to save cash and live the most frugally. Then when the low time comes it is a good time to buy land, building materials, etc. We are building our on-farm butcher shop and slaughterhouse right now. Costs are low. It is saving us a lot. If I had done this during the boom times things would have been far more expensive. Ride the waves, the cycles.

Check out a construction loan.
- higher interest rate
- shorter term
- other terms differ
- should get you easier terms than just land

Owner financing a second option

What of value can you sell off of the land immediately? (lumber etc)

What would the bank finance the land for if you lived on the land in a trailer?

Put some creativity into it, and you can do it. You could option the land with specific criteria, then build your house in the given timeframe and then finance the money from the bank. Requires some capital, but not as much.

be sure to check the cities plans for that area for the next 25+ years. You may not want that property.

I would not suggest bothering with banks. Look for owner financing and private financing. It is better to pay 6% interest to a _real_ person than to the banks. Do have a lawyer draw up appropriate paperwork and make it a real loan but cut the middleman, the bank, out of the deal. They are just stealing our money, taking no real risks (look at the bailout) and getting rich (look at the AIG executive's $1Billion annual bonuses).

I have worked both with banks and with individuals. I much prefer the experiences with the individuals. I would rather have them earn the interest.

pubwvj wrote:They are just stealing our money

That's not exactly true, While the bailout was ridiculous banks do a lot for liquidity. banks allow us to get more out of the money in circulation,  and allow us to get capital to people who need it, while hedging the risks for depositors.  They also act as clearing houses for actuarial data which allows them to avoid poor business decisions more often than a "real person".

I bought my place five years ago from a very motivated seller.  He lives in Missouri, the property is in Washington, and he was tired of dealing with deadbeat renters while living so far away.

Each time I spoke with him, he dropped the price a thousand dollars (stopping at $6,000 off his original asking price).  He pretty much let me name my terms and even put it on a thirty year contract (apparently he has a much younger wife  ).

My payment for my home and five hillside acres is less than my son and his wife pay for a one bedroom apartment in town.

Granted, I was lucky (right place at the right time and all that), but I would think with the housing market the way it is now, you can find some desperate sellers.  Just remember, though, that if you find a place that's listed with a real estate agent, your down payment is more than likely going to have to be enough to at least cover the commission.  My place was a "for sale by owner" - no real estate agents, no bank.  Everything was done by a title company.

One thing I did (and which I highly recommend) is to assign the collection to a bank.  For $100.00 initial fee (which I gladly paid) and a small handling charge each month (I also willingly pay), I make my payments to a bank.  They process it, record it, compute interest, etc. and cut a check to the seller.  No questions about payments being made or received.

We have tha same problem here in Penna,  the Banks will not lend money of Land alone.  Getting an owner to hold the paper maybe your best option.  The last post about a motivated selled is the key.  You can ask them to hold the mortgage for you if they are willing to do that.  In that cast you get the deed to the land,  they get a loan against the property.  The up side for you is that you might be in a better place to get a bank loan to help you build.  After you have a house on the land you can look for a Bank loan to pay off the seller and have just one payment.  The 2nd option is a Land contract.  In that case the owner keeps the deed to the property so they take much less risk.  Less risk to the seller means they might be more likely to do the deal.  You put down a down payment and each month you pay you own another small piece of the land.  When you finish paying the owner gives you the deed.  The down side to you is that if you miss a payment they can take the land back and you loose everything.  In that case you are taking all the risk.  Most people with a land contract want to pay off the prior owner as soon as possible,  so once your equity is high enough to get a Bank loan with a fixed interest rate you should pay off the contract.  You will need an Att to draw up the peperwork,  and make sure that you do not have a pre-payment penalty.  Good Luck Hope you find a place that works for you.

pa_friendly_guy wrote:
and make sure that you do not have a pre-payment penalty. 

Yes!  That was another thing that I was adamant about!  Because my seller was willing to stretch the "loan" out for so long (30 years), my payments are low enough that I am able to pay extra each month.  I'm currently paying an extra $200.00 a month and hope to kick that up another notch with the next payment.

I am hoping to eventually have this place paid off.....and not take thirty years to do it!  Even if that means eventually shopping around for a lower interest rate (I currently pay 8%, a little high, IMO), refinancing at a lower rate and payment and paying off the original seller, and hopefully, have a payment so low that I will be able to double the payments and get it paid off free and clear.

You could have cut that interest rate in half (if you went to a 15 year), but it will cost an extra 8-12K in closing costs to do a refinance. Act now, with the latest jobs reports expect interest rates to rise pretty soon.

The realtor who sold me the land knew which bank would loan on bare land. I suppose that it increases the sales that she can make, because it is very true that most banks do not loan on bare land.

The owner contract is the way to go, screw those banks.
We found a deal for 20 acres with power, well, and phone on it.  He was asking 57000 for it, we offered 50000 with 15000 down, and 8 years at 8 percent interest for the balance.  He didn't even quibble.  No credit check.  We did the deal through the title company, they take care of the payment from us to him for a small fee.  The total of the closing costs was 400.00 to the title company.
With an owner contract, you don't have anyone telling you you can't buy raw land, you can't build the small house you want, etc.  The person you are buying from cares mostly that you make your payments every month and maybe that you don't turn the place into a junkyard.  If you miss your payments it is easier for him to kick you out since he is the owner until you pay him off. 
The payment at the start of the deal went half to principle, and half to interest.  Compared to a bank loan you are lucky to have more than a few dollars going to principle until years into the loan.
Taking it one step further, the land has usable timber on it so we are building a sawmill to cut what we need to build with.  Going to be post beam with strawbale.
People need to start looking at alternatives to the "normal" way of doing things to get by.

I was trying to stay out of this one, yet here I am.  I did the realtor gig some years back and learned a lot about alternate financing.  Check out of state banks online, while you're at it.  I agree, owner financing is a win/win, and probably the best way to go if you're wanting alternative housing.   With construction loans, in my area, you have 6 months to get the house completely finished, can't move in unless it's totally finished...and no alternate building methods would be considered.  I HATE being under someone's thumb!!!  But they all have rules and regulations that they have to abide by.

We were in a similar situation - what we did was get some money using low/no interest credit cards.  That got us the land and a start on materials.  We are building by ourselves, and paid cash for materials as we went along.  By the time my payments on the cards were getting up pretty high, I went to a local bank that gave us a line of credit, using the land and house as collateral and paid off the credit cards.  The house was totally framed, looked finished on the outside and a lot of drywall was up by then.  Our line of credit was signficantly less than what the place was worth at that stage of construction. The downsides were that the interest rate is actually higher than the credit cards were at the time, and the bank wanted us to get a life insurance policy to cover the risk because of our ages.
Risky?  You bet.  But I was determined to live in the country and spouse wouldn't consider it without the lure of a new house.

5 years later, we're still living in a construction zone (lack of time is a major factor now), pay cash for what we need to work on the house.  The bottom line is that we love it here, inspite of things not being finished, and I wouldn't change a thing (other than building a much smaller house!!).

Best of luck to you!

Find a bank with a farm management/agricultural lending department. Smaller banks, independent banks, or banks in rural agricultural settings are best.

If they have a farm management department, there's a decent chance they do rural land appraisals (and they may even have someone who specializes in AG sales). Ask if they have an AG lending branch; if they don't, they will know who does AG loans in your area. If they have an AG lending department, they may be able to meet your needs. If you can't qualify for a USDA guaranteed loan for farm ownership, they may be willing to finance your project some other way. I suppose it depends on what you intend to do with the land.

I used to work in the farm management department of a bank, and we did everything. We had one guy who did ag loans, but everyone did appraisals and watched land auctions.

With that being said, screw debt. If you can find a good deal, grab it. I would be iffy about buying anything that could be cultivated for row cropped grains, at least for a bit. At the current price of corn, AG land prices (at least here in the midwest) are kinda high right now. Back in 2008, when corn hit $7 and beans went up to like $14, I watched a guy pay $8500/acre for 80 acres in Ford county. He would have saved a bit of cash if he had waited about a year.

stewartrIL wrote:
Find a bank with a farm management/agricultural lending department. Smaller banks, independent banks, or banks in rural agricultural settings are best.

Absolutely, if you have to deal with a lending institution.  We never could have obtained our line of credit with any of the banks in the city, including the one we did business with for over 25 years.
Hopefully you can work out something with the current landowner.  Make sure you check into access, water and power to make sure they're available.  You can eventually get away from anything power related, but you have to have what the county considers legal access.  I got screwed on 7 acres that I bought years ago.  Even though there was a dirt road going to the property, the county said that it wasn't legal access.  What crap.

Land only loans can sometimes be had from credit unions- they may only loan on land with power and water- credit unions seem more open to land loans . Part of the reason is if a buyer defaults on a home, it’s easier for banks to dispose of it. They don’t want to take on an asset (land) that they can’t easily sell.
 Although you can find a land loan, they won’t be at the low interest rates that a land plus a home would be at- land only loans are considered to be more risky for the loan institution.
Typical rate, as of May 2020 , is 6-6.5%. They’re often shorter terms as well. (Not 40 yrs like a home) that’s about the same rate as an owner contract.
GESA and P1FCU , and Farm Credit Bureau
Are the ones I know of.
On thought is to secure the land at the higher rate, and as soon as possible  convert it to a construction loan with a different company- in other words, do a RE financing, roll construction (often has to be planned, by a contractor) into the loan .
There may be loans for Native Americans through 1stTribal- that’s called an 804 loan. Usually homes, but not just land.
I’m familiar with the financing
Because I’m a real  estate agent in North idaho- and frequently get  these questions from buyers.
Your state may have other opportunities- but that’s how things roll here in Idaho.
Take care , Ella in Idaho

Two points;
Debt
There is good debt and bad debt.
I think its presumptuous to declare all debt bad.
Good debt to that which in the case described meant that rent saved was much more that the cost of the loan.
Bad debt is a holiday or a new car that instantly looses value when you take it home.
Loans
In Australia we have personal loans for vacant land.
The interest rate is a bit higher than a housing loan.
Affordable loan repayments for something which you will use for a long time can be called good debt.
So I ask you to just think about it.

HI John,

Excellent point on the good debt/bad debt.  I can think of numerous examples where I gained by going into short term debt while locking in a target of opportunity. A decade back a neighbor showed up wanting to sell me 5 acres of land at market price.  The land was attached to mine and i jumped at it.

I would also add that what debt is needs to be defined.  If I have $500,000.00 in savings and take out a $1000.00 loan, am I going into debt?  

All things considered, I would rather have no debt, but we live in the real world.