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Construction Loan for Farm?

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  • Construction Loan for Farm?

    Ok, here it goes.

    DH and I have been searching for over a year trying to find a house within our price range (and our price range is reasonable) that not only isn't falling apart due to the age, but is up to code for financing. We want to have the horse(s) at our house (boarding right now), but our search keeps turning up with disappointing dead ends... house has acreage, but is wooded...house is falling apart inside... with the type of loan we are getting, it has to be deemed "liveable" so even if we thought we could fix up the house, the bank won't give us financing.

    Has anyone used a construction loan (or any other type of loan) to purchase a parcel of land for the acreage, and have a home built on it? In my area, a 14 acre lot is going for $30k on average, not too shabby. We don't even need that much acreage! 3-6 acres is what we would like -- would like the ability to have a max of 3 horses on the property without violating ordinances

    If you have done this, what information can you give me? Did you have to have a certain % down? Was the interest rate higher? Any pros and cons you can give me is much appreciated.

  • #2
    I've never done it, but I know Farm Credit does these kinds of loans. I love working with Farm Credit. Good luck!
    ************
    "Of course it's hard. It's supposed to be hard. It's the Hard that makes it great."

    "Get up... Get out... Get Drunk. Repeat as needed." -- Spike

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    • #3
      I can give you no reference but a warning of who NOT TO DEAL WITH


      the USA Farm Service Agency (FSA) and their banking is to be avoided even to the point of starvation

      Tamara
      Production Acres,Pro A Welsh Cobs
      I am one of the last 210,000 remaining full time farmers in America.We feed the others.

      Comment


      • #4
        Yes check with Farm Credit if you're also wanted to include land in the purchase price. They're probably the only lender who will deal with you on that much acreage. The conventional lenders typically won't talk to you once you get past 1-2 acres. We found that out recently when trying to put an offer in on a house with 14 acres. Even when we were going to put a sizable down payment down on the property (think half of the purchase price!) the conventional lenders still wouldn't play ball.

        I think my local Farm Credit agent recently quoted me an interest rate of 5% on a construction loan. Their rates are a bit higher than what you could get from other lenders because they do their financing in house... whereas other lenders often end up selling off your loan.

        We were able to buy our land (24 acres) with cash but now we have to survey out an acre of land separate from the large parcel to use for securing a construction loan with a conventional lender. It's so dumb but today's world of lending is far different than what it was at one time. It's either this or we pay the higher rate to go through Farm Credit.
        "Farming looks mighty easy when your plow is a pencil, and you're a thousand miles from the corn field." --Dwight D Eisenhower

        Boston Terrier Rescue of NC - www.btrnc.org - Adopt for Life!

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        • #5
          Talk to Farm Credit. Also consider buying more acreage than you think you'll need. You will be surprised how small 3 - 6 acres can be with 3 horses.
          Where Fjeral Norwegian Fjords Rule
          http://www.ironwood-farm.com

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          • #6
            Try AgCredit too, but also check with local banks as well. We were able to go through a local bank 5 years ago, and even refinanced with them this year. They service the loan "in house" so it doesn't have to conform. We built a house and barn, and also financed our fencing. We have 25 acres. This was before the mortgage crisis - we borrowed about 80% of the total appraised value.

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            • #7
              we did ours thru citibank for the construction loan.. but really had to jump thru some hoops. loans includes well,septic,house,barn,fencing,power..originally we wanted the pool on the same loan but decided that could wait a year or two.

              did look at Capitol farm also did you pick through foreclosures and bankruptcys ? I would have gone that way if anything at all was available within an hour of DH work.. not even a regular ranch for sale so we are building
              I can explain it TO you,but I can't understand it FOR you

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              • #8
                WOW!!! I don't know if I could get 14 acres and a building eligibility here for $150,000 and we are "rural."

                I would definitely buy more land at those prices.
                DIY Journey of Remodeling the Farmette: http://weownblackacre.blogspot.com/

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                • #9
                  We got a construction loan on our 30 acre parcel in 2005- We re-fied and can't rember the original lender, but was a standard lender, not Farm Credit
                  Epona Farm
                  Irish Draughts and Irish Draught Sport horses

                  Join us on Facebook

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                  • #10
                    Ag Credit who my loan is with for 28 acres, barn, fencing, water well and driveway. 20% down and locked in financing for up to 10 years I think but that also includes shares in Ag Credit that pays a dividen which I throw back onto the principle. The local banks wanted 40% down (If I had 40% to put down I probably wouldn't need the loan).

                    Comment

                    • Original Poster

                      #11
                      Thanks for all of the helpful information.

                      I was told my our local going-to-be lender that it's a minimum of 10% down, and "much more involved" than the loan we are seeking right now. We do not own property or house right now, we are renting. The reply I received from my bank about the construction loan wasn't very helpful (?? ) "More involved?" I guess I need to go back and ask them what they mean by that. I am also wondering if I were to do go about purchasing land this way if I wouldn't be better off going to a Farm Credit place or the Greenstone.

                      The problem right now is that the land cannot be worth more than 30% of the house when appraised in order to get the loan we want (Rural Development - no PMI insurance, lower interest rate, don't even need any money down). However, for rural development, the property cannot have any red barns, no livestock living or once living on the property, as the RD loan wants to finance the HOUSE and not LAND (or "farm land"). There are so many fricken regulations that it's really making our search difficult. You would think Rural Development would mean country (which the locations you are allowed to use this loan at ARE "country"), but seriously, everyone out in the country has a fricken RED BARN. A pole barn "may or may not" be different depending on the person that comes out to appraise the house. So really, it depends on who appraises it and what mood they are in that day.

                      DH and I want to start having a family and although we are still "young" I don't want to take another year. We have even sacrificed some of our "wants" from our list to see if it would help, but it hasn't. Either no horse at house, or we get a 2 bedroom house as of right now with what is out there. I really do not want to purchase a 2 bedroom house (planning on having two kids) only to turn around and sell it (if we can - 2 bedrooms are almost impossible for resale or so I have heard).

                      Sorry, my pity party is over. Just getting extremely frustrated. I could board the "pony" but not where he is at right now. Only other hope is that I find a nice neighbor out in the country that wants to board him for me, but even then you have to be set up in case things don't work out, etc.

                      Thanks everyone for your replies ~ I greatly appreciate them!

                      Comment


                      • #12
                        little house now idea

                        I am in the process of selling the house we have had for the last six years and even though I will probably sell it for more than I paid, I would NEVER recommend buying something you will shortly outgrow (in our case we have plenty of house but want to buy an acreage). 1) Selling and moving is a HUGE hassle 2) It is difficult to buy your next home when you own your current one 3) things will break--furnace, new roof, etc. stuff a landlord pays for now 4) You can kiss about 10% of your value goodbye (realtor's fees, real estate transaction fees, taxes, buyers of starter homes are going to ask you to pay for closing costs, etc.).

                        So even though we have paid down thousands of dollars on our (traditional fixed) mortgage we will be left with little to show for it even if we sell the house for more than we paid.

                        It is really depressing. I would be SO MUCH better off if we had stayed renters until we were looking for more of a "forever" home. I would not buy unless I planned on living there 10+ years.
                        DIY Journey of Remodeling the Farmette: http://weownblackacre.blogspot.com/

                        Comment


                        • #13
                          I was told my our local going-to-be lender that it's a minimum of 10% down, and "much more involved" than the loan we are seeking right now. We do not own property or house right now, we are renting. The reply I received from my bank about the construction loan wasn't very helpful (?? ) "More involved?" I guess I need to go back and ask them what they mean by that. I am also wondering if I were to do go about purchasing land this way if I wouldn't be better off going to a Farm Credit place or the Greenstone.
                          We have been looking for land for a few years. Talked to a few banks and it seems that more involved means they will examine your financials with a fine tooth comb. They were asking for a CRAZY level of documentation in comparison to when I bought a house in 2005.

                          We were also told 20 to 25% down for raw land and that the bank only finances 60 to 70% of the appraised value, which in many cases is much less than the market price.

                          Apparently they gave out land loans like candy a while back and got burned on them.

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                          • #14
                            I looked into it but didn't end up doing it. It was with a local bank. I believe it was 20% down (of the total) but the terms were a bit different--20% down and 30 year fixed for the land, but the construction portion was at a slightly higher interest rate, and you didn't begin paying on that until the bank actually paid for the services (in draws--basically you set up a schedule), so it rose incrementally. That seemed nice, since during the early stages of building you are probably paying to live somewhere else.

                            It is definitely a complicated process, and what scared me off were the many requirements for scheduling construction, selecting contractors, bank inspections etc. For my potential loan you were required to use a single class A general contractor who could then only subcontract to other class A contractors, the bank would come and inspect at each draw, the loan was at risk if you got behind schedule. Obviously you couldn't do any work yourself, unless you happened to be a class A contractor.

                            I get it, as it is the bank's money and they want to be sure it is building good collateral, but there seemed like a number of opportunities outside of your control for things to get sticky.

                            Comment


                            • #15
                              We kind of did it backwards with our first place; paid cash for the land, and then put a manufactured home on the property and took out a residential construction loan to put in well, septic, barn, and arena. I don't even know if that sort of financing exists anymore, but it worked very well for us.
                              In loving memory of Laura Jahnke.
                              A life lived by example, done too soon.
                              www.caringbridge.org/page/laurajahnke/

                              Comment

                              • Original Poster

                                #16
                                Thanks for listening and and offering up your experiences. Although renting is tempting, DH is adamant about wanting to purchase house. 1) Market is in our favor right now. 2) Rent around here has raised due to not many people purchasing right now, that although you don't have to worry about the furnace breaking or maintenance, it's actually more expensive to rent vs purchasing. His philosophy is if we're going to be paying $xxxx a month, we want to put equity into a house. Makes sense.

                                On a plus side, we have two houses we are going to look at next week, each one has ten acres. One of the houses has a pond, but it looks like it's far enough away that we wouldn't have to worry about flooding and the pasture could be built on the side of the house, where the pond is closer to the road farther away from the front of the house.

                                Wish us luck!

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                                • #17
                                  I see a spammer brought an old thread up to the top. OP, how did it turn out?

                                  (spammer reported)
                                  If you are allergic to a thing, it is best not to put that thing in your mouth, particularly if the thing is cats. - Lemony Snicket

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                                  • #18
                                    Originally posted by Beam Me Up View Post
                                    It is definitely a complicated process, and what scared me off were the many requirements for scheduling construction, selecting contractors, bank inspections etc. For my potential loan you were required to use a single class A general contractor who could then only subcontract to other class A contractors, the bank would come and inspect at each draw, the loan was at risk if you got behind schedule. Obviously you couldn't do any work yourself, unless you happened to be a class A contractor.
                                    .
                                    This is standard for construction loans.
                                    Jigga:
                                    Why must you chastise my brilliant idea with facts and logic? **picks up toys (and wine) and goes home**

                                    Comment


                                    • #19
                                      Since this is back to the top anyway, and other people may be reading it, I'll chime in that building a new house on bare land is a significant time sink even if you hire out all the actual work. It is also fraught with uncertainty and thus likely cost overruns, as you discover the hard way the reason there wasn't a house on this land already. (Remember, people always choose the best home sites first. If there's no home on your land, it's because there was a better home site nearby. That doesn't mean yours is untenable, just that it's less good than your neighbor's.) Getting a well, septic, electricity, and phone in to the property can take a long time and sometimes turns out not to be possible.

                                      You'll spend a lot of time sitting out at your site waiting for contractors and tradespeople and inspectors - your site that has no shelter and no electricity and no internet.

                                      Just the time you'll spend making decisions and shopping for fixtures will take hours and hours and hours you don't expect.

                                      A factory built house, if that works for you, can be a very nice way to go to get a quality house on the land with a minimum of risk and fewer delays.
                                      If you are allergic to a thing, it is best not to put that thing in your mouth, particularly if the thing is cats. - Lemony Snicket

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