Loan question - Raw land

[Mellifluous]

I hope I explain this clearly.

If you agree on a price to pay per acre for land and it appraises for more, can you use the high appraisal to keep from having to pay as much down? I know that it can be done with a home loan. Say that the price agreed on is $7500 an acre but the appraisal is such $9000 an acre could be borrowed. Make sense???

Also, what is the normal time frame for a loan for raw land? What I have heard so far is 10 years and then something about a 3 or 5 year balloon.

I feel stupid asking my family these questions so if any of you could help me with some answers, I would greatly appreciate it!

[Helene]

I think it depends on the lender. There are so many options. In general, though, I have learned this.... the interest rate on raw land is much higher than on a house. Banks don't like to give loans on raw land.

[Mellifluous]

Yup, we have learned that part!

The plan is to buy the land, go ahead and get it cleaned up and then in 3 or so years get a construction loan to build the house that we want. We could then roll the land and home into one hopefully lower interest loan. The thing is, we just won't be ready to build the house we want for another couple of years.

Another alternative that we are considering is to get enough for the land, site improvements and enough to build a barn/apartment that we could live in until time came to build the house. We thought that it might make the loan terms better (this was KEVIN'S idea - he is thinking about barns)!

We have not for sure settled on the price. If the owner won't take $7500 an acre with the idea that Kevin and I would be turning it into a hobby farm and would be the neighbors, Kev and his dad are considering pooling resources and buying it for a little more an acre to subdivide and resell.

[Pasogirlz]

I think it depends on the lender. There are so many options. In general, though, I have learned this.... the interest rate on raw land is much higher than on a house. Banks don't like to give loans on raw land.

ditto.

Different lenders offer different programs. A broker might be able to help you find just the right deal.

[Helene]

The apartment/barn idea is a very good idea, but when we looked for a construction loan to build our first house (absolutely no experience in house building), we ran into problems. We inquired at a few different banks....the fourth or fifth, finally, took a chance on us and gave us a construction loan, but I think...the land was paid for in full and we had stellar credit. The construction loan was a couple of points higher than the permanent mortgage that we finally settled with a year later. My husband was offered another construction loan by this bank just a couple of weeks ago.....interest rate at 10%.
Another idea....would the owner do the financing with decent interest, say for a few years with a balloon after 3, 5 years??? Or what if you put a used mobile home on the land? Here, you can't hardly do that anymore....no single wides allowed anymore in our county and/or not older than a few years old. But maybe you can where you live? That's what we did about 10 years ago....we put an old trailer on paid-for land, then got a construction loan and built the house, then sold and moved the trailer....Now, though, you can't hardly get financing for a mobile, either. We tried for a friend....We might have found one bank, but the interest rate was like 9% versus 6% for a house.
How about a relative that would loan you the money to buy the land right out till you could start on the house if you can get a construction loan? Then, pay him/her back with the final mortgage????
By the way, there are a lot of costs before you even start building....electricity, water, septic, site preparation, permits, inspections....We got estimates before we started building. If you subdivide, you have to get surveys, etc.... And-- we found that banks look real anxious on "unconventional building" (which barn/ apartment may fall under). I remember the loan officer looking worried when we came up with a log home or straw bale home...He was relieved when we settled on a conventional, traditional home.
The banks will want estimated costs...and do they want details!!!!

[Mellifluous]

Good thoughts. The mobile home thing would be a no go because that is very difficult and Kev would not be keen on it.

I don't think a construction loan would be too bad for Kev to get since he has done loans for spec houses in the past. He knows the ropes there. He was figuring the costs of site improvement along with the cost of a barn/apartment. He just finished plumbing a REALLY nice one a few months ago so I know that it can be done here.

Owner financing is not an option as he is dying and wants a lump sum in the bank for his widow to live off of. He does not want her to have to deal with anything.

If we do end up going the rape and pillage route with the land, subdivision of land is not a problem in the county that the land is in. They are still a bit in the dark ages when it comes to that sort of thing.

We are kicking around a lot of ideas right now. I think that we will be having a family pow wow tonight.

[PASOFAN]

You and I have the same dreams in mind, buy land, imrpove it, then build a few yrs later.

IT IS VERY HARD! I went to INDYMAC bank, they have good terms on land loans, and came recomended to me. ( I too am a loan officer). I havent found my land yet and havent actually gone thru them yet..

Land loans are difficult and rates vary, so shop around. Call local credit unions too, some do REALLY REALLY great deals on land loans, if I had my choice I would do it at my credit union but my land is out of state and they dont do out of state loans. bummer..

Good luck!!

[pnalley]

Also talk to Ag South, they will do larger tracts with less down and better overall terms then many banks.

The majority of lenders I work with (Realtor & Appraiser) will loan on the LESSOR amount of sales price or appraised value.

[DSDECKERT]

Mel - I have a GREAT contact at First Horizon - if you want the info PM me and I'll send it to you.

[Pasogirlz]

You might also try to find if they do RDA (Rural Development loans) in your area. But they generally have strict income limitations. They are good for single parents or one income families.

[motorgypsy]

What about an elevated house like a beach house - say 1000 to 1500 square feet with the bottom floor open except for the support pillars for barn or parking or whatever you want to use it for. Just put a slab down there under it and build up 10 feet or so??? This way it would be a conventional home but if you wanted to you'd have a 1000 to 1500 sq foot run in barn or garage or workshop or combination. Just a thought.

[Rose Mary Axell]

Check with your lender.

We made the mistake of buying raw land and paying for it out right. Then when we went to get a morgage to build a house they told us we needed 20% down. We had no cash because we had used all our cash to buy the land and the bank would not use raw farm land with no buildings as collateral! We ended up having to get a personal loan to build a garage. Then becasue we had a building on the land the bank would allow us to combine the land an the "garage" into an actual morgage. We slowly built the "garaage" into a house, by having regular inspections that allowed us to borrow more money. As the we completed more and more of the "garage" it developed more value therefore we had more collateral and could borrow more money to do more work on the "garage"! What a pain in the A$$! If I had bought the land and arranged a morgage at the same time our cash would have been more than the required down payment and we could have had everything done at once, and affordade a much bigger morgage!

[PASOFAN]

My uncle is a mortg broker too.. If your interested PM me... He has lots of connections too if the other suggestons dont pan out.. Ag South sounds interesting as well as RDL loans.. I need to ck those out myself! Good luck!

[DebbieS]

We're buying a piece of raw land (closing tomorrow). We got a 6% loan (through the seller, CFD - is that an option for you?). It is directly across the street from the old sandstone hotel we bought. We're thinking parking lot for awhile (for our soon-to-be coffe shop), then maybe some cute cabins later....

Good luck, Mel. If you can do 20% down, a lot of sellers will carry. We will have 2 of them.

[DebbieS]

Oops! didn't read entirely through your 3rd post. I guess CFD isn't an option for you :(

[Mellifluous]

If any of you have good contacts that you would not mind pming me, I would really appreciate it! Kevin and I are exploring all of our options to see what will work best for us.

I wish that I still had my old salary. :-?

Kevin is going to get the land on his own, I get to help out when it is time for a mortgage (translates to me actually getting some raises and things paid off). This will be interesting.