Financing for Vacant Land

Finance
#1

I am looking for input on how to finance a property I want. It’s 20 acres with a rustic cabin (no water, generator hookup for electricity). I could pay cash, but my wife would have a heart attack. Part of our savings is for emergencies and the other part is to do work on our house - so most of that is off limits.

The purchase price will be between $34-$39K. I prefer to have the lowest monthly payments possible. My bank initially said they could finance it for 10% down, for 30 years, at 3.776%. But, when I went back to verify they said that the dwelling cannot be seasonal for these rates and that they cannot finance it. At the initial rates they quoted me, my monthly payment would have been between $240-$260, with property taxes and insurance included. I would love to get financing like that if possible.

Any logical ideas on how I could do this?

#2

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#3

Might not be what you are looking for but… what about a heloc on your primary residence? Rates are still pretty good on heloc’s and terms can be flexible.

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#4

Tell her it’s an emergency.

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#5

I like that one, but I’d probably be the one calling for an ambulance!

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#6

I actually contacted two small-town banks near where the property is located. One already pre-approved me for 10% down, 6.xx% fixed rate @15 years. Because they are financing as vacant property, homeowners isn’t required and the montly pmt is around $285, which isn’t bad. I’ve run the numbers and don’t know how they came up with that payment, but I’m not going to argue.

I need to submit proof of income for the other bank, but they have already given verbal approval, but it’s a 5/5 ARM, and I don’t know what the down pmt and initial APR is yet. And, I’m not a fan of ARMs. But, after 5 years I could pay off the balance of the loan if the rate increase is too steep.

Any thoughts on these terms, especially the ARM if it turns out to be a better monthly for the first five years?

#7

That’s less than the price of most new cars. Why not pay it off in 5 years like a car loan? Or ask the seller if they would take payments at 0 percent if you paid the asking price.

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#8

That’s the key. Get it financed however you can - and change the question from spending your savings to buy this land, to leveraging your savings to save money by paying down high-cost debt.

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#9

I keep hearing about USDA loans for single family, urban homes. It seemed wrong to me, but figured it was some kind of a loophole to get govt guarantees for marginally qualified buyers. It seems that if they’ve got money to throw away, at least your property would be more up their alley.

I haven’t looked into any of the above, but it may be worth a brief investigation.

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#10

I don’t think that applies in this case. I don’t have any high-cost debt. I have one low-interest car loan and a mortage that is 60% paid and has an APR of 2.625%. I pay off my credit card each month. That’s it.

What it comes down to is we have about $33K that we were going to spend on doing some updates around the house. I want to spend part on a down payment for the land and keep the monthly payments low, and use the rest for their intended purpose. My wife is good with that.

The second option came back with a few financing options. One thought is to take their 7/1 ARM at 4.75% with a 25 year term, and make higher payment so that by year 7 I have paid more of the principle so if the rate increases it’s a smaller hit, and get the loan paid off in 10 years or so. Thoughts?

#11

You missed the (tongue-in-cheek) point - you create the high-cost debt by purchasing the property using whatever financing you can find. Thus changing the story from using your nest egg for an expense (buying land) to using it for savings (avoiding interest costs of the debt).

It’s all about manipulating your wife to gain her buy-in. :slight_smile:

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#12

Gotcha. I’m more of a black-and-white kind of guy and tend to miss the subtle meanings.

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#13

Do you have enough equity in your home? Have you considered a HEL, HELOC or cash out refinance? It’ll probably be cheaper than the ARM.

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#14

If interested in HEL or HELOC, here is a starting point. Great CU - easy to join and good service. You may find better rates locally as well.

https://www.hfcu.org/loans-and-credit-cards/home-equity.html

#15

For that little amount, I would take advantage of 0% BT offers and float it that way for a couple of years (even with a 3% BT fee) and then pay it off when I was comfortable sinking the cash into it. $30-40k is easy to manage with BTs.