How are Farmland Loans Different from Home Loans?

Most people are well aware of the home loan process. However, did you know that the land buying process is significantly different? Take a look here to learn more about the differences.

1. Farmland Loans are Riskier than Traditional Loans:

While you provide the same financial information to buy farmland as a traditional mortgage, there’s a difference in the underwriting. Well, in the case of a home loan, the home is collateral.

However, there’s no home in a vacant land purchase. This means the lender doesn’t have any guarantee to recover the money if they have to foreclose a land loan.

Besides, it’s difficult to sell vacant land because there’s not much demand for it. It’s no wonder, land loans have a higher down payment. They also require a higher credit score and a lower debt-to-income ratio than a traditional mortgage.

In addition to this, the land has a slightly higher interest rate than conventional home financing options.

2. Different Requirements:

The lender collects your financial information when buying land, just as it’s done for home loans. However, in addition to this, they also need an appraisal and title work done.

There, however, is a difference. Unlike standard mortgages, lenders don’t need to buy insurance for vacant land or conduct any inspections or surveys. However, this may vary based on the property to be bought. For instance, if it’s 10 acres or less, then it’s better to have a survey to better understand the proper lines. Sometimes it’s better to conduct a soil evaluation of the property to find out if any parts of the land require remediation. This soil evaluation can help ensure the buyer doesn’t buy land that isn’t right or useful for them.

3. Niche Lenders are Better Lenders:

Despite there being multiple lending institutions offering vacant land loans, it’s better to work with a lender specialized in this area. Some lending institutions may offer shorter termed land loans, higher down payment, balloon payments, or have a specific timeframe for building a home.

But some lenders are flexible and don’t consider it mandatory to have a structure on the property. Some have a large network of experienced professionals who can help customers through their loan process. They offer specialized assistance to customers looking for farmlands to build a new home with space, hobby farm, or hunting spot.

There, however, are various factors to consider deciding on the optimal land loan program. Some factors are the property size and how you intend to use it. That’s why it’s not advisable to impulsively invest in any farm property. It’s better to do it only after a thorough consultation with an experienced lender.

You never know how the consultation might affect you. You may feel that it’s better to get a USDA loan or to perhaps get a land contract for a year. You generally have to confide in your lender and clearly explain your financial situation. Your lender will go through all the available options and help you decide if you want to get farmland loans now or later.

For more information on Farmland loans visit, United Farm Mortgage.