In the market for a  new land loan? 

Many times people will search for land loans to refinance an existing loan for a better interest rate, or perhaps you are searching for a land loan for the purchase of a property, or maybe to “buyout” partners/relatives, or even to expand your current agricultural operation.  Whatever the situation may be there are some important aspects to keep in mind when searching for the right land loan lender. 

Keep these items in mind when searching for a land loan lender: 

Prepayment penalties:  An important aspect to consider when searching for a land loan lender is whether or not the lender requires a prepayment penalty.  Prepayment penalties can be very costly if you should decide you would like to sell your land, or refinance your land.  If your land loan carries a prepay penalty, you’ll have an early payment fee.   This fee is typically a set percentage of your principal loan amount.  This is something you will want to learn in the very first conversation when speaking to a potential land loan lender.  Another restriction which comes along with a prepayment penalty is the fact that you will assess fees if you pay extra towards the principal.  Some lenders may allow for some, and others none.  In my opinion, it’s better to take a slightly higher interest rate, if  this is offered to you, and go with a loan that has no prepayment penalty.  This allows flexibility in your future if ever your land loan were to paid off early. 

Balloon payments:  A balloon payment is typically a large payment made at the end of your scheduled payments (term).  This payment is typically the principal left on the land loan.  It’s sometimes typical for land loan institutions to offer balloon payments.  Be careful, balloon payments can have a great impact on your financials if you were not able to refinance the loan before the balloon due date, or sell the property.  When the loan “balloons” you will have to pay the lender the full remainder on the loan through whatever means necessary, otherwise the land loan lender will/can foreclose on your property.  I highly advise against land loans with balloon payments 5 years and shorter and I typically wouldn’t advise anyone to take a balloon payment at all, unless a) the balloon loan had a term of 10 years or more, b) the land is to be paid off before the balloon, or c) you are in a circumstance  which gives you no other choice but to acquire a land loan with a balloon payment. 

Freedom / Privacy:  You may currently be a customer of a land loan bank who feels their privacy is being violated in certain ways.  For those of you who don’t know what I’m talking about, many land loan banks will monitor a customers cash flow, financials, and accounts receivables to determine whether or not you pose a risk to making payments on time.  If you do  pose a risk, you may be asked to pay more towards principal, liquidate assets, or pay the loan off entirely.  To me, this shows distrust from a customers perspective.  If you are not familiar with this type of practice, it may come as a surprise to you when your lender asks for financials post closing.  This is something you will definately want to discuss with your potential land loan lender.  To visit a land loan lender that will not parkate in such practices, click here.