Pulse: When Choosing a Lender, Buyers Place Paramount Importance on Rates and Terms

The July LANDTHINK Pulse revealed that 53.0% of respondents choose a lender to finance their land purchase based on their quoted interest rates and terms compared to other lenders. The general sentiment is that a cash purchase is always a better option when buying land for sale. Most land buyers, however, are not in a position to tie up all their cash and instead take a loan to finance their land purchase. Just as making the decision to buy a particular tract of land warrants ample consideration, so, too, does the buyers’ choice of lender.

Lenders come in many types and sizes, offer different products and services, and have different ethical standards and levels of customer service. They also have varied knowledge and experience of the different types and uses for land. There are many factors to consider when choosing a lender, and it’s important to select the one that’s best for your unique needs.

July Pulse Sponsored by

Last month, the July Pulse asked: What factors are most important to you when selecting a lender to finance your land purchase?

Based on the results of last month’s survey question, buyers go straight for the lender that offers the best rate and terms. When it comes to determining your interest rate, some elements are under your control and some aren’t. The overall level of interest rates is set by market forces. Rates fluctuate rapidly, based on the current and expected rates of inflation, unemployment and other economic indicators like home sales, housing starts, corporate earnings and stock prices.

Compared to constructed property, land tends to be a riskier investment that’ll require a buyer to make a higher down payment (15-23% for a lot, 20-50% for raw land) and pay higher interest rates. With no structure yet built on the property, lenders often view these buyers as having less skin in the game. The better your credit score and more favorable your debt-to-income ratio, the more likely it is that you qualify for lower rates.

Common land loan options include a Lot Loan, Raw Land Loan, and Construction Loan. Land loans can be relatively short term loans (2-5 years) with a balloon payment after that time, while a home mortgage offers 15 and 30-year terms. Longer-term land loans exist (or you can convert to a long-term loan), especially if the you have plans to build on the property. The process for obtaining a land loan varies depending on where you’re buying land and how you plan to use it.

The second most important factor to buyers when choosing a lender (32.0%), is the lender’s Knowledge and Expertise of rural and farm properties. When shopping for a land loan, buyers should consider a variety of lenders. Quite often, the best places to get land loans are local or regional banks and credit unions located near the land you plan to buy. Local institutions know the local real estate market and can better assess the value of the land and its potential. Farm Credit institutions offer lending solutions for farmers and ranchers and can help with financing land to grow crops, improve or expand current operations, or increase agricultural productivity. 

The third most important factor (31.8%) was a lenders Willingness to Guide Them through all phases of the loan process. Customer service is where lenders have an opportunity to set their organization apart from competitors. Lenders who answer questions quickly, clearly, and in a timely manner will make applicants feel more comfortable about the process and provide them with confidence that they have chosen the right lender. Buyers should pay close attention to how they are treated during the early stages of shopping for a land loan; it’s a good indicator of how the rest of the process will go.

It’s often difficult for a buyer to find the right property that meets their unique needs, and in the current competitive land market, buyers should be ready to proceed and move quickly when they find land they want to purchase. LANDFLIP has made it easy for buyers that visit their network to connect with a lender early in the search for land online, joining forces with Farm Credit institutions throughout the Southeast to help buyers gain access to land financing.

Lenders and land agents will work closely with buyers and do the best they can to help buyers obtain financing for land. Buyers should seek advice from several lending professionals and explore all financing options, including owner financing and home equity line of credit, which has a lower interest rate than land loans.

LANDTHINK would like to thank AgCarolina Farm Credit for sponsoring the July Pulse and for coming up with a very interesting question to pose to our audience. North Carolina farmers and rural residents can qualify for loans for farms, homes, agribusinesses and more from one of the three Farm Credit associations in the state. AgCarolina Farm Credit is part of the Farm Credit System, which has been serving the credit needs of rural America for 100 years. Their loan officers live in the area they serve, and are an active part of their rural communities. AgCarolina Farm Credit knows farming and agribusiness best because their loan officers and directors are local farmers, who understand you need a lender that will stand by your side. For information about loans, services, and more, contact a relationship lender that services your area.

Become a Pulse sponsor! It’s a great way to ensure your brokerage is the first one buyers and sellers call when they have a need to buy or sell property. You’ll get insane exposure on Social + Email + Web. That’s 500,000+ monthly eyes on you! Once you have it, you won’t want to give it up! Pulse sponsorships are offered on a first come first serve basis and are subject to certain limitations. If your business would be interested in sponsoring a Pulse question, please contact us soon.

Do you have a Pulse question you’d like to suggest? Submit your question and we might choose yours!

We want to know what you think about our August Pulse question, chosen and sponsored by American Forest Management: Which do you feel contributes most to the current demand for land? Answer now.