Here are the financing options we researched when learning how to buy land for our homestead. We’re not experts, so we always recommend asking the pros for the best advice. This post contains affiliate links, which may lead to a commission if purchased. This comes at no extra cost to you. Thanks!
How To Buy Land With A Land Loan
One of the most common misconceptions when researching how to buy land is that financial institutions won’t lend on vacant acreage. Additionally, some people claim that the only lenders who will lend on land will require absurdly high down payments or sky high interest rates. Of course, some banks simply won’t do it. But many will! The key is knowing where to look. Too many potential homesteaders give up when the typical names in residential home lending won’t lend on vacant or agricultural land. We know the discouragement well. But remember; we’re not looking for standard residential properties here. Below are the best resources we found for how to by land or acreage successfully.
- Farm Credit
- Local Lenders
- USDA Loans
- Private Lending
- Cash
Let’s break them down a bit more!
Farm Credit Lending
I’m going to be honest; I don’t really understand Farm Credit. What kind of institution it is, how it’s tied to the smaller lenders that actually disburse the money, or any of the details. All I know is that Farm Credit linked us right to a lender in our area who was more than happy to lend on the vacant lot we wanted.
This was after it was shot down by multiple lenders in our area who even will typically lend on vacant land. They suddenly wouldn’t touch it when they heard it was over 10 acres, or when they heard it was being farmed at the time of the sale.
I came across Farm Credit by digging deep into the world of online homesteading forums. I can’t believe more people don’t know about it. They’re known for financing rural and farm properties — including everything from massive agricultural operations to tiny homesteaders and hobby farmers like us. Not only do they finance land, but supposedly they will gladly lend on outbuildings, agricultural businesses, and even owner-builder projects as well.
Our lender even had options for 20 or 30 year land loans for as little as 15% down. This came as a shock to us, considering that so many homesteading forums claimed it’s impossible to find land loans that go past 5 years or require less than 50% down.
Is There A Catch?
What’s the catch? The land loan rate is just a tad higher than conventional loans are these days. (I can’t remember exactly right now… I don’t even think it’s a full point higher though.) Since rates are so low these days, we didn’t mind. Especially when compared to other options like personal loans, private shared equity agreements, or seller financing, the very mild rate increase doesn’t bother us at all. Once we get our house built, we will actually have the option to refinance the property with other more traditional lenders in the area, if we really want to save some dough.
Long story short, for us, it was incredibly affordable, and the process of actually buying the land was seamless. This isn’t sponsored — I’m just genuinely happy with the experience we had through Farm Credit!
(Don’t forget to check out our farm loan calculator if you want to see what a land loan might look like for you!)
Local Lenders
We went through a local lender through Farm Credit, but some homesteaders figure out how to buy land or acreage by utilizing other local lenders, as well. I will say; lending parameters seem to have changed quite a bit since 2008, and even more so since the pandemic so drastically affected the job market. I think these days, it’s a lot less about “knowing your lender” to secure a loan that otherwise wouldn’t have worked through the big names. The lending standards in financial institutions really don’t seem to be influenced much by personal relationships anymore.
That being said, local lenders may be more willing to loan on rural properties because they know the area, and they can more accurately predict their return on investment and future equity of the land. We had a little luck with local credit unions when we were still in the “land shopping” phase. These lenders were happy to lend on vacant, buildable lots up to 10 acres, or even non-buildable “recreational” lots of vacant land up to 80 acres. Wildly enough, they immediately nixed our current property when they heard it was over 10 acres and buildable. (But supposedly if it hadn’t been buildable it would have been fine through a recreational land loan…? That never added up to me, but it doesn’t matter anymore!)
USDA Loans
The US government also offers some rural property incentives through USDA loans. The USDA loans are meant to enable low-to-moderate income families with resources regarding how to buy land and move into rural areas. There are upper income limits, so many people simply won’t be in the running for this option. However, for those who can be accepted into the program, there seem to be many homesteading opportunities and great deals to be had that traditional lenders might not otherwise touch.
Private Lending
Some hopeful homesteaders have the option to learn how to buy land through a private lender. This could be an outside investor, a friend, or a family member. Some ways that private lenders can profit through lending on acreage might include shares of a farm business, returns from the farm business profit, or shared equity in the property itself.
How To Buy Land With Solid Credit
I think the notion that lenders won’t consider vacant land comes from the fact that land is generally a riskier investment than a house. Lenders who will lend on land mitigate this risk with slightly increased rates, when compared to residential housing lending. Because vacant land is a riskier investment for a lender than a house, it’s imperative that applicants come in with a strong financial history. For most of us, the purchase of land or acreage is a years-long dream that takes time to achieve. I highly recommend maintaining excellent credit — or working towards it while waiting — for anyone who wishes to learn how to buy land with a loan. It’s never too late to start!
How To Buy Land With Cash
Perhaps the most obvious way to learn how to buy land is simply to pay for it in cash. When we first started trying to figure out how to buy land, many fellow homesteaders online told us that the only option for buying land is with cash. Because of this misconception, we seriously considered moving out to Arizona, where we dreamed of living someday and acreage is much more affordable. Without a doubt, figuring out how to buy land is easiest if one has the savings to spare for a simple cash transaction.
Even for a land loan, cash is necessary for the down payment. I’ll be going into what we did to save up the cash for our land down payment and owner build in the next post.
Sometimes it makes the most financial sense to pay cash for land, and sometimes it doesn’t. Many properties that are more affordable and attainable with cash won’t appreciate in value in the same way that other, more expensive properties will over time. Deciding whether to pursue a debt-free lifestyle or take out lending to purchase land as an asset that will appreciate more in value over time is a personal decision.
Leasing Land Is More Accessible To Many
Leasing land can be an extremely viable option to those who can’t figure out how to buy land in the timeframe that they want to start farming. The main reason we didn’t lease land before we bought was because we really aren’t familiar with how one goes about finding farmland to lease. Remember, we’re city folk transplants! If we had known how to lease land before purchasing, we might have jumped at the opportunity years ago. Instead, we focused on residential real estate to grow our income enough to purchase land while we waited. Plus, since we really wanted to live on the same property we farm, we were determined to learn how to buy land instead of lease. (Building our own house would not have been an option with most farm lease agreements.) Again, this is a personal decision, and there’s no right or wrong answer!
Do you know how one goes about finding farmland available for lease? If so, please drop a comment below!