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Financing Rural Properties

How to deal with the bank, loan officers and mortgage underwriter when it comes to buying a rural property.

| June/July 1999

  • 174-082-01
    Finding funds for hard to finance rural property.
  • 174-082-02
    Loan officers appreciate a real street address.

  • 174-082-01
  • 174-082-02
One day, a little road takes you to a gravel drive with "For Sale" sign next to it. You follow that drive up to an old,dilapidated house with sagging porch, rotten steps and broken windows. But look here-a straight roof line and plumb doors, a bold spring in a concrete box-and there, behind the house, a small orchard. Some gestalt mechanism in a far recess of the mind whirs and clicks: home. After two years of searching, my wife and I knew this small homestead in Virginia was the place for us. Then we called our bank.

We had been active members of this bank for almost our entire lives. It held all of our savings. We had obtained insurance, car loans and charge cards there. Our credit was perfect. I was certain we'd be approved for a loan. How could our banker-practically a member of the family-say no? Easily, it seems.

Improved property, i.e., property with a house on it, is a better risk than unimproved property. And the more improved the house itself is, the more improved your chances of sharing a hearty hand shake with your lender.

Loan officers like known quantities. They get more uncomfortable than a seventh-grade tuba player at a Sadie Hawkins dance when you tell them a house has no water, no wiring, an out house and an address that references your neighbor's barn. The good news is that there are people and institutions that will lend money on the property you want to buy. You just have to find them, convince them you're a good risk-then pay them.

I'd like to pass along some of the things we learned in the process of buying our Virginia homestead. Consider the following a general introduction to financing rural property. This is a complex subject, complicated further by regional differences in land use, Don't hesitate to retain a qualified lawyer, financial planner and/or buyer-broker.

Dealing with Bankers

The term mortgage arises out of the Latin root for death. It seems if you didn't fulfill the terms of your medieval mortgage, a nice man would come from the central banking district and kill you. The financial services industry has mellowed over the years, but, still, proceed with caution. Do your homework and always read the fine print. When you borrow money, the lender demands collateral or security-an asset that it can convert to money if you default on the loan. In most real estate transactions, the property itself serves as the collateral. Because the market for rural property is

much more uncertain than it is for urban or suburban homes, lenders are often hesitant to make loans in rural areas. It's a painful experience to find that the place of your dreams isn't deemed worthy by those holding the purse strings.

What a Financier Looks For

Mortgage underwriters will consider your income and employment, credit his tory and assets. For many of us, the re turn to rural life might involve deliberate downscaling, simplicity or even voluntary (hopefully it's voluntary) poverty. When looking for a mortgage, you need to keep these ideals to yourself. Loans for homes and land are loans against your future earnings. You need to show regular in come in the years preceding your pur chase. Begin living the ideal of simplicity on the expense side of the balance sheet by avoiding debt like the plague. You might, however, want to "inoculate" yourself to debt prior to applying for a mortgage by taking on small loans for necessary things like cars or education.

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