Stewardship Capital

Land, Lot and Hobby Farm Loans

Buying land is not like buying a house. Lenders look at land more closely because there is no home to live in right away. A hobby farm adds more questions about water, use and value. This page explains how land and small-acreage loans work and how to get ready.

How are land loans different from home loans?

With a home loan, the house is the safety net for the lender. With a land loan, there may be no house at all. That makes many lenders more careful. Land loans often ask for a larger down payment and more paperwork. Fewer lenders offer them, and the rules vary a lot from one lender to the next. Stephen confirms what is available on your specific file.

What is the difference between raw land and an improved lot?

What is raw land?

Raw land has no utilities or roads set up. It may not have water, power, sewer or a way in. It is usually the hardest type to finance, because the lender cannot be sure it can be built on.

What is an improved lot?

An improved lot already has things like road access and utilities at or near the property. A lot in a finished neighborhood is often easier to finance than a remote parcel. Lenders like to see that the land can be used the way you plan.

What do lenders check before they lend on land?

Lenders want proof that the land is usable and legal to use. The list varies, but these are common.

• Zoning and what you are allowed to build or do on the land
• Legal access, such as a recorded road or easement
• Water source, such as city water or a well
• Sewer or septic, which may need a test
• Electric and other utilities
• A survey and a clear title
• An appraisal based on similar land sales

Realtors can help a lot by asking for these items before the offer is final. Questions answered early keep deals from falling apart late.

What is a hobby farm loan?

A hobby farm is usually a home on extra land. It might have a few animals, an orchard, a barn or a garden for personal use. If the home is the main part of the value and you live there, it may be financed like a home. The extra acres, outbuildings and farm use can make the appraisal harder. Similar sales may be far apart.

Farm income is not counted unless it can be documented the way the lender requires. Working farms that earn a living from the land may need a lender that specializes in agriculture. Stephen helps you sort out which side your plan falls on.

Can I buy land now and build later?

Many people do. You might buy the lot with one loan and finance the build later. Or you might use a loan that covers both. We explain the second path on our construction loan page. The order you choose changes the paperwork, so plan the whole project before you buy.

Can land I already own help with the down payment?

Sometimes. If you own land free and clear and want to build on it, some construction programs count the equity in the land toward your down payment. Others do not, or they count it differently. Stephen confirms how it works for your file.

Also plan for costs beyond the price. Land often needs a survey, soil or septic tests, and money to bring in power, water or a road. Some lenders include part of these costs in the loan, and some do not.

How do I get ready to apply?

Collect the basics. Know what you want to do with the land. Gather your income and asset documents, as for any loan. Ask the seller or agent for the parcel number, survey, access and utility information. Then talk with Stephen before you make an offer. Check loan limits by county if a home on the land is part of the plan, and read our Buy a Home page for the general buying steps.

This is not a quote, a commitment to lend or an offer of credit. Stephen Chakerian, NMLS #2193331 | Stewardship Capital, a team of Barrett Financial Group, L.L.C., NMLS #181106 | Equal Housing Opportunity.