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Owning Land

Land Improvement Loans: What to Know

August 25, 2023

Purchasing a piece of land is a great achievement, but the true joy lies in transforming this property into a haven for you and your loved ones to cherish for generations! As the saying goes, “It’s a marathon, not a sprint,” and the same is true for developing your property since improving your land can be a long and costly process depending on your goals. Fortunately, many lenders have begun to offer unique land improvement loans for landowners looking to make their dreams into reality.

Here’s what to know about land improvement loans!

What is a Land Improvement Loan?

A land improvement loan is a unique kind of loan designed to foster a long-term relationship between a landowner and a lender. These land improvement loans can be used for all manner of land improvement projects such as timber harvesting and establishing internal roads, or various kinds of construction projects including cabins, storage/equipment sheds, fencing, and more! 

When it comes to financing improvements on a property, most commercial banks and lenders are more likely to finance a single transaction rather than an ongoing development project. This leaves landowners in a tough position when seeking funding for a continuous improvement project. During his recent appearance on the National Land Podcast, Spencer Floyd from AgSouth Farm Credit spoke to their philosophy behind offering land improvement loans, stating, “We want a long-term relationship with [our clients]. We want not only that initial purchase loan, but we want to help [our clients] make their property the one they have in their goals and visions.”

What are the Minimum and Maximum Caps?

The minimum and maximum caps on a land improvement loan are closely tied to the landowner’s loan-to-value ratio. Some lenders like AgSouth Farm Credit can lend up to 80-85% of the total undervalue of the property dependent on the account balance. Spencer Floyd explained the significance of this for landowners, stating, “If you’ve had an open account and loan with [AgSouth Farm Credit] on a farm that you bought say 5-10 years ago, you’ve really paid that [loan] down and beat the principal down. That combined with the natural appreciation we’ve seen over the last several years means there’s so much equity to tap into if you want to do that.” 

Essentially this means that the equity a landowner has in their land compared to an updated appraisal value dictates the total loan amount that landowner can secure. To aid landowners in this process, some lenders can conduct appraisals themselves and offer a smoother and faster evaluation.

What is the Typical Term of an Improvement Loan?

The duration of a land improvement loan can vary significantly depending on the nature and scale of the development project, though they typically range between 15 and 20 years. For example, if a person owns a 20-acre horse farm that needs fencing, the loan term might be set at around 10 years. That being said, some lenders have the flexibility to extend the loan term even further to ensure that repayment plans align with landowners’ long-term goals for their property.

Improving your land is a labor of love that can create precious memories for you and your loved ones that will last a lifetime. Land improvement loans pave the way for you to transform your property into your own slice of heaven without the burden of prohibitive costs or short-term limitations. If you’re ready to take the first step toward creating your perfect place, contact one of our expert Land Professionals today!

About the Author
Bryce Berglund is National Land Realty’s Content Marketing Specialist. He is currently residing in Minnesota, where he attended the University of Minnesota Twin Cities. Bryce is an appreciator of all things artistic, and likes to spend time at his cabin with his dog and family.