Rec Land Explained

Recreational land loans are specialized products tailored for purchasing or developing properties intended for recreational activities such as camping, hunting, fishing, or other outdoor pursuits.

Investing in land offers long-term benefits and can generate revenue depending on its location and developmental prospects. Properties once considered remote can appreciate significantly as communities expand, creating demand for additional residential, commercial, and public infrastructure.

Moreover, there's a growing interest in rural properties for various purposes such as homesteading, mini-farming, investment in resources like minerals or timber, or simply for recreational use to escape from urban life for activities like camping, hiking, or hunting.

When it comes to financing recreational land, the process differs from traditional mortgages. Taylor Hart, the manager of the Auburn/Opelika branch of First South Farm Credit in Alabama, sheds light on the requirements and procedures involved.

First South Farm Credit, operating since 1916, specializes in providing credit for farming operations, rural homes, and land tracts for enjoyment or investment.

“We can lend up to 85% of the value of a piece of property which means a buyer has to come up with 15% as a down payment,” said Hart. When it comes to the interest rate on the borrowed amount Hart said that the rates are based on several factors.

“One is the financial history and strength of the borrower. The stronger the financial position of the borrower the lower the rate will be,” Hart said. “Another factor that influences rates and terms of the loan is how much money the purchaser is willing to put into the deal, over the 15%, which results in a stronger collateral position. Rates can also be influenced by the length of terms. Typically, the shorter terms, the lower the rate.”

Buyers can use cash or other owned properties as collateral for the down payment. Larger purchases, over 10 acres, are treated as agricultural loans, offering advantages such as fewer regulatory hurdles and quicker processing times.

“If the purchaser has other land or agricultural collateral that is mortgage free, we can usually take that in lieu of a down payment allowing the purchaser to hang on to their cash for use elsewhere,” Hart advised. There are some special considerations and “wrinkles’ for purchasing recreational land.

“At First South we look at purchases over 10 acres as an Ag loan versus a consumer loan and treat it as such,” Hart said. “The advantage of Ag loans is that there are less governmental regulations and compliance issues, which means less red tape and a quicker purchase to close time frame.

“When a person purchases land and First South finances that purchase, the buyer is free to use the land in any way they deem fit whether it is for income generation purposes or strictly for recreational enjoyment to establish their own piece of paradise” he added.

The loan application process varies based on the loan amount and other factors.

“Whether the purchaser wants to get pre-approved or they come to us after signing a contract the process is pretty much the same,” Hart pointed out. “Obviously, on a pre-approval we do not know the sales price and consequently we will not be able to calculate the exact loan amount, so we use the loan amount requested by the borrower.

“One of our most popular loan programs covers loans up to $250,000 and is a credit score-based loan that is seamless. In this scenario, the borrower fills out a one-page application, provides a current pay stub and we load them into the system to be scored. That is all it takes. It is very popular with our members due to the simplicity and short time frame it takes to close,” Hart explained.  For loans over $250,000 First South requires tax returns and a couple other pieces of financial information in order to do a financial analysis.

“Upon receipt of an executed contract First South will order title work, an appraisal or internal valuation, whichever is needed, and also coordinate the closing with an attorney,” Hart said. “We provide these services to our member free of charge and it relieves them from doing all of the leg work to coordinating all the moving parts of getting from contract to closing.”