Frequently Asked Financing Questions

How do land and home mortgages differ?
Land loans and home mortgages are normally similar, but land buyers often require longer terms and more flexible repayment schedules. This is especially true if the income earned from the land, such as the sale of agricultural crops, is the primary source of loan repayment. A lender that specializes in making loans for rural real estate is most likely to offer flexible financing.

What mortgage products are available to rural real estate buyers?
Both variable-rate and fixed-rate loans are available for rural real estate loans. Each type of rate product offers advantages, depending on the customer’s situation and market conditions.

In a high or falling interest-rate environment, buyers may want to consider choosing a variable-rate product. Variable-rate loans are generally more desirable for shorter terms. Farm Credit offers loans that are indexed to either the Wall Street Journal Prime rate or the 90-day LIBOR rate.

Fixed-rate loans are often preferred in a low or rising interest-rate market, but many rural lenders do not offer fixed-rate terms, especially for land loans. However, Farm Credit offers fixed-rate terms for both home loans and land loans.

For land loans, Farm Credit offers terms up to 20 years, and in some cases up to 30 years. For home loans, Farm Credit offers terms up to 30 years.

How do I go about financing a country home?
Your ability to find financing for a country home may depend on the value of the home compared to the value of the land, and the amount of acreage on which the home is situated. Some commercial lenders can finance home sites up to just 10 acres in size. Also, some lenders are restricted from making loans on property where the land is worth more than the home. Farm Credit is among the most flexible rural home lenders and can finance sites of less than one acre to sites of a hundred acres and more.

What are the main sources of rural financing?
Commercial banks, mortgage companies, insurance companies, private lenders (owner financing) and Farm Credit lending co-ops are all sources of financing for rural real estate. Some are more active in financing certain types of real estate, such as working farms, than other types. Farm Credit institutions finance the entire spectrum of rural real estate, from recreational property, to full-time and part-time agricultural operations, to country homes.

How does owner financing differ from a traditional mortgage?
It may be possible to negotiate more flexible repayment options with a private lender. However, buyers typically can choose from more products and options when they borrow from a traditional lending institution.

What should I look for in a rural lender?
Choose a lender who is knowledgeable and experienced in financing rural real estate. An experienced rural lender can offer guidance on agricultural-use tax exemptions, conservation easements, environmental factors and insurance sources that an out-of-state lender might not be able to. A local lender will be familiar with land values and comparable real estate sales prices in the area, and that could result in a faster loan closing.

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