How Certain Property Details Might Impact Your Land Loan
How Certain Property Details Might Impact Your Land Loan
As metropolitans continue to grow in population, land ownership becomes more and more attractive for some people. Finding the property and making it your own can sometimes pose challenges, however. Below we go over common property details and how it might affect your land loan when you’re searching for that perfect piece of land.
One of the first steps, in addition to touching base with your loan officer, is to identify the land. That may seem obvious but when dealing with land parcels surprises sometimes pop up. Identifying the land is super simple if you’re buying a piece of property that is already identified by a tax parcel number or a survey, but other situations can be somewhat more challenging.
When you buy a piece of property a survey should exist that is used to provide a description
of the parcel but sometimes the surveys are dated and raise questions about the exact acreage in a piece of property. That’s when it’s good to get a new survey.
Often, we have people who find 50 acres for sale but they want to carve out only 15 acres. This makes the preapproval process difficult if the 15 acres you’d like to purchase are not legally identified out of what is called the parent tract. Getting a new survey of the land is required in this circumstance as well.
Water Tests aka 'Perc Tests'
AgSouth Farm Credit does not require perc tests on land loans. If you're buying a lot with the intent to build a primary residence then one is required. (A percolation test determines the water absorption rate of the soil in preparation for building a septic drain field.)
Even if the land you are purchasing is for farming and may not include a home, a conversation with the seller about any water issues may be in order. For certain farming operations you want to ensure you have ready access to water on your property; having to add a source of water can be a large, unexpected expense.
Another consideration is to make sure you meet the planning and zoning requirements. Every county requires different things so to identify the right piece of property for your needs can sometimes take a few more steps than pointing at a map and saying, “this is it”! Contact your local county courthouse to discuss their planning and zoning requirements on land.
Accessibility and Easements
Property accessibility may seem obvious but as larger parcels may be cut up and sold, you need to make sure you can easily access the land. The easiest situation is to purchase land that touches a state-maintained road to ensure legal access to your property. If the land does not touch a state-maintained road, it’s important to learn whether the property has legal access to it, most likely by an easement. This may require obtaining an attorney to research property deeds.
Easement size is important as well since you want your easement to be wide enough to transport whatever item you plan to move to and from the state road to your property. This includes vehicles, trailers or any farm implements. Lenders need to know the buyer has a legal and physical access point to the piece of property, and these need to be one and the same.
Easement battles can be quite difficult because people understandably don’t want to give up ‘their property’ rights. Someone may have a legal easement and not a physical easement. This means that they would have to clear the way and establish a road to reach their property, which can become very expensive. We try to address these issues up front to help the buyer work through them as smoothly as possible. Being aware of such pitfalls and doing the needed research early on to learn about easements on your property and with any neighbors can help head off unwanted surprises.
Beginning Stages of Financing
As negotiations begin, and particularly before you sign an agreement to purchase, we recommend you spend some time talking with a loan officer at your local AgSouth Farm Credit branch in either the county you live or the county where you will be purchasing land. Loan officers are aware of the local market and can guide you through essentials such as the loan application, approval process and the do’s and don’ts in purchasing land.
It’s best to have key portions of the transaction in place when you apply for a loan to purchase land. Key items are seller’s name, a tax map or survey (if available) and a negotiated purchase price that is in line with market values.
What You Need to Get Started
Land purchases that are less than $400,000 can be handled relatively quickly when it comes to the approval. It’s helpful to have tax returns and pay stubs. With your name, address, date of birth and Social Security number, AgSouth Farm Credit can have a decision based on your credit history in about one to two days. The approval is contingent on the appraisal and getting a clear title to the land.
For larger purchases, financial documents such as tax returns, bank statements, pay stubs and balance sheets are required. A loan officer will advise on any other necessary documentation, depending on individual circumstances and the complexity of the loan. If the purchase is being made by an entity such as a corporation or LLC the legal documents for the entity are also required. [Read More: Forming Legal Business Entities to Purchase Land]
What About Down Payment?
For any land purchase, plan on a down payment typically in the range of 15 to 25 percent. This amount depends on credit risk and the nature of the land being purchased. AgSouth Farm Credit may loan up to 85 percent of the purchase price or the appraisal amount, whichever is less on land loans, and up to 75 percent on lot loans.
In the 75 percent example, if you’re buying $100,000 worth of land and it appraises for $100,000 then you will need to plan on $25,000 down plus your fees. The loan will be $75,000. But if the land appraises for only $80,000, you will have to come up with a lot more money than you had anticipated because the loan amount will only be 75 percent of the $80,000.
Down payments can also vary depending on whether currently owned land might be used as collateral to go toward the down payment. Sometimes a down payment may be a combination of cash and land, or land only, depending on circumstances. If cash is the method of down payment, documentation of available cash is required.
Land Loan Timeline
How much time to expect before closing on your piece of real estate? For a straightforward piece of property allow from 30 to 40 days. On a more complex piece of property or in a really busy market allow 60 days or more.