Whether you are buying or selling land in Western North Carolina (WNC), where the money comes from is critical to the success of the transaction. But buying land is not always like buying a home. Most traditional lenders do not have loan products for buyers to get a mortgage on a parcel of more than 5 or 10 acres, so financing options may be more limited for the buyer and therefore the sellers may have fewer people able to purchase their land. Over the past year (for non-commercial parcels over 5 acres in Buncombe, Henderson, and Madison County), approximately 66% were financed as cash transactions, 20% used a conventional loan, and 10% used seller financing.

CASH (OR LOAN NOT TIED TO THE LAND)

These transactions are most common and may be the buyer writing a check from their savings account, but they may also include loans not tied to the land. For instance, I commonly see buyers access the equity in their current home by doing a cash-out refinance or using a home equity line of credit to get the cash needed for a land purchase. They may also qualify for a personal loan to fund the purchase. And, if the land is an investment asset, buyers may also use self-directed IRAs or be in a position to perform a 1031 exchange that will help fund the purchase. In all cases, buyers should consult their accountant and tax advisor for all financial advice on what the best option is for them to fund a land purchase.

CONVENTIONAL LOANS

Most lenders do not lend on large tracts of residential vacant land, but Carolina Farm Credit does. They offer loans of up to 25 years and normally require a minimum of a 25% down payment. With over 100 years of helping landowners and farmers, they understand the niche market and can help buyers finance these purchases as long as they aren’t used for sub-developments. Additionally, there may be other specialized lenders who service their loans in-house and are able to work with large tracts. Buyers should always consult a licensed loan officer to discuss their options.

OWNER OR SELLER FINANCING

This can be a way for sellers who own land without any loans on it to attract more buyers to their land, negotiate a higher purchase price, and allows the seller to spread out the income from the sale over a longer period of time. Though it does come with additional risk for the seller. It also benefits the buyer by creating an opportunity for them to purchase a property they may not otherwise be able to buy. The buyer and seller will agree to financing terms such as down payment, interest rate, amortization schedule, and when a balloon payment might be due. An attorney will draft the deed of trust for the loan, and the seller will become the lender for the buyer.  The buyer will own the property subject to that lien just as they would with a traditional lender.  If the buyer fails to pay the seller in accordance with the terms, the seller may foreclose on the buyer with the assistance of their attorney.

WHO’S INVOLVED?

In all cases, buyers and sellers should consult with their team of applicable experts to confirm this information and see what’s right for the unique situation. These experts include the client’s attorney(s), a licensed mortgage loan officer, tax advisor, and an accountant in order to gain a full understanding of each of the options highlighted above. I’m happy to coordinate those discussions to help my clients overcome the challenges of financing land in Western North Carolina.