I Need a Loan

       One of the difficulties that I consistently run into selling property with land is that most conventional funding sources are set up to handle homes, homes with lots, but not homes with land. The bigger the bank, the more they want to fit square pegs into round holes. And they don’t loan on land!

       Let’s explore this a bit. Say you want to buy a farm on 50 acres. It has a home, 2 barns, and is priced at $250000. Your mortgage broker from the city said you would need only 10% down, $25000. Everything goes swimmingly until we get to the appraisal. The appraiser gets his instructions from the bank, who tells him to only consider the home and 5 acres. He is unusually generous to you, but still the appraisal comes in short, $200000. OK, you only need $20000 now to get the mortgage, but of course the seller will not sell it at $200000 and you did agree to pay $250000. The missing amount gets added to the cash you need in order to close ($20000 + $50000). That’s $70000 and it’s not 10% of the purchase price; instead it’s 28%.
       Maybe you would have been better off to go with one of the sources I had originally suggested who ask for 20-25% down but instruct their appraisers to consider the entire property you are buying, so you will get “credit” for the missing 45 acres of land and the 2 barns. These have very real value and should be part of the equation.
       I think it’s crazy that any bank will not allow for the value in land. No one, not even them, thinks that land does not have very real value. No one believes a seller would not expect to receive a fair price for what he has to offer. Land is durable, it doesn’t burn down, fall down, or get damaged by snow wind or hail. No one can make more of it so the market cannot be flooded. It’s a good – scratch that, a GREAT – investment and it puzzles me that they do not take advantage of it. Square pegs and round holes is the answer. And also the fact that no banks have ever asked me to sit on their board of directors.
       Let me steer you toward where I think you have the best chance. And I am always looking for new sources of credit, especially if they incorporate land and outbuildings into the security they need in order to lend.