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Looking to purchase a rural property? Finding the Right Lender Matters.

Chad Young
Home > Education & Events > October 2019 > Looking to purchase a rural property? Finding the Right Lender Matters.

As a rural home buyer, finding a lender who is qualified to accommodate your needs and offers the best rates is invaluable.

Do you and your family dream of moving back home to the rural community you grew up in?  Do you envision raising your children on a hobby farm with horses, cats, dogs?   Or even a larger farmland property where you can have all of those plus cattle, chickens or even llamas?

If so, then looking for an agricultural lender who specializes in financing these properties is a great choice. Why?  Because these companies will work with you and your property, regardless of whether or not the property has “ag” or income producing characteristics.

You might be asking yourself why all lenders don’t finance these properties. Well, the answer isn’t simple but it mostly boils down to one thing; Risk. Lenders typically look at the risk associated with a financing a property. A conventional, or conforming loan, has a certain set of guidelines it must meet, so it can be sold on the secondary market (Freddie Mac, Fannie Mae, FHA, VA, etc.). With that, comes certain timeframes and regulations.  Since the risk to them is minimal, most lenders like to fund their loans to sell them to the conforming or secondary market. Typically properties on the secondary market qualify for the “going” interest rates that most lenders post on websites, billboards, etc.

But what if your dream property isn’t a cookie-cutter plot and doesn’t fit within the conventional/conforming loan bucket? The lender might be able to fund the loan for your rural home or hobby farm but, due to their perceived risk, will most likely do so with an adjustable rate mortgage of a shorter term, ending with a balloon payment.  These terms may fit the lender’s criteria, but are usually not ideal from the borrower’s perspective. As a rural home buyer, your best bet is to work with an agricultural lender who can fund through the secondary market if the client and property qualify (like most lenders) and fund loans for properties that have those “ag” or income producing characteristics.  There’s no reason to settle for an adjustable rate or short term loan. A lender specializing in rural properties will offer qualified buyers long term fixed rates.

Quickly though, let’s go back to the rate. With increased risk to the lender comes increased rate. When we shift gears to one of our other programs because the property doesn’t qualify for the secondary market, the risk is greater and therefore the rate will usually be a little bit higher.

Some examples of properties that might not qualify for the secondary/conforming market:
  • Hobby farms with larger acreage that have the ability to generate income off the land
  • Properties with tillable acres or zoned agricultural
  • Properties with substantial outbuildings
  • Earth homes, Dome homes, Pole framed homes
  • Properties with large equine facilities
  • Properties with no home (bare land)
 So, when you start your search for that rural, dream property/home search for a lender that will be able to offer you and your family the opportunity to fund the loan the first time, regardless of the “ag” or income producing characteristics. –Remember the key:  seek out a lender who will fund the loan through the secondary market if the client and property qualify but who also offers the loan using a long term fixed rate, even if it doesn’t qualify for the secondary market.
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