Know BEFORE You Buy
A home in the
country, far away from traffic jams, noisy neighbors and crime,
is the dream of more than a few city folks. But buying and financing
a country dream home is much different than buying a home in the
city. Before making that move, take time to research how country-home
loans are made.
Farm Credit lenders have been making rural-home loans for nearly
a century. In the past, rural-home customers primarily were full-time
farm and ranch families who lived and worked on the same land. But
nowadays, the typical customer may have little or no farming experience.
factor driving the country-home market is technology," says
Tim Knesek, senior vice president of Capital Farm Credit in La Grange.
"Technology has allowed people to telecommute, and that makes
an hour-long drive into Houston more palatable.
are usually two-career families who have good jobs and the income
to build large homes," he says. "They want their children
to enjoy a small-town environment and schools, while they work from
home part-time and are close enough to drive into the city part-time."
Because many country-home buyers have not grown up in the country,
they are not always aware of the nuances of buying in the country.
Unlike urban residential developments, rural acreage sometimes may
have limited access to community water and sewer systems. Sometimes
amenities like high-speed Internet or cable service are more limited,
or costly to acquire.
house in town, buyers are used to being on water and sewer systems,
and in areas with restrictions," says Knesek. "But outside
the city limits, owners should be aware of needed infrastructure
costs like water wells, sewer systems and electrical connections."
Most likely, the property will have an existing ag-use tax exemption,
which significantly lowers the owner's tax bill. First-time country-home
buyers often are not familiar with the requirements for maintaining
an ag exemption, and commercial lenders sometimes require the buyer
to rescind the exemption before making a rural-home loan.
Not so at Farm
Credit. "As soon as we finish at the closing table, we encourage
our customers to go directly to the Appraisal District office and
find out what they need to do to keep that exemption in place,"
says Joe Hayman, chief operating officer for Texas AgFinance in
Farm Credit lenders say another common surprise for country-home
customers is the difficulty in securing homeowner's insurance. "Customers
naturally assume that their current insurance carrier will automatically
pick up coverage on their new home, but that is not always the case,"
says Hayman, noting that many insurance companies won't underwrite
policies outside the city limits. "Farm Credit has been doing
these loans for so long, we can help customers find insurers who
do write rural policies."
country-home buyers have a dizzying array of financing options,
thanks to the secondary market's entrance into rural-home lending.
"The secondary market totally changed the housing market for
us, by giving us greater flexibility and options," says Hayman.
"We now have more tools in the loan officers' tool-
box and are more likely to meet the needs of virtually any applicant."
Today, Farm Credit lenders offer:
Loans. Customers wanting to take advantage of low interest-rate
markets can choose variable-rate mortgage loans, with Prime- or
LIBOR-based floating rates for up to 15 years. These loans are
ideal for moderately priced homes in rural areas with populations
of less than 2,500. Because these loans are kept in Farm Credit's
in-house portfolio, these customers can receive the benefits of
their cooperative ownership in the association. These benefits
Patronage Dividend Payments. "We are a co-op,
and our borrowers purchase stock and are paid dividends,"
says Penny Hall, assistant vice president of real estate services
with AgTexas Farm Credit Services in Fort Worth, whose association
routinely has paid dividends for years. Like AgTexas, Capital
Farm Credit says its patronage payments make the association very
competitive. "On average, our patronage dividend program
has reduced our borrowers' cost of money by approximately one-half
percent," says Capital's Knesek. "Of course, the dividend
payment isn't guaranteed to occur every year, but I can guarantee
that the mortgage company or bank down the street won't pay one."
Funds Held Accounts. On loans kept on the association's
books, borrowers can benefit from a Funds Held Account in which
deposits earn interest and can be used to pay loan installments
or withdrawn for other purposes.
Loans. Fixed-rate loans continue to be the most popular with
home buyers. "On acreage property, most mortgage companies
can only finance up to 10 acres," notes Hall. "We can
do the acreage and the home in one loan, which saves the customer
closing costs - and they only have to make one payment."
Farm Credit associations can lend up to 95 percent of appraised
value on 30-year fixed-rate loans, which are then sold to secondary
market lenders like Fannie Mae and Farmer Mac. There are no loan
minimums and no restrictions on locations within city limits.
Loans. One-time closing options enable borrowers to close
on the permanent loan at the same time the construction loan is
closed. Once the home is complete, the customer can opt to reprice
the loan to take advantage of declining rates, or refinance it
into a fixed-rate loan.
Farm Credit offers unique repricing services not typically found
elsewhere. If market conditions are favorable, for a small fee
a customer may reprice a loan to receive a lower rate and lower
payment. "To reduce payments on a commercial lender's loan,
they usually would have to pay for completely refinancing the
loan. Repricing is a huge financial benefit for our customers,"
Difference: Knowledgeable Service
In today's highly competitive mortgage-lending market, all lenders
offer fairly similar products. That means the key to competitive
advantage becomes the lender's knowledge and service.
deciding on a lender, what it really comes down to is who you trust
to know what they're doing," says Hayman. "We've been
doing this since 1917 and we know how to make home loans outside
the city limits better than anyone. Underwriters in New Jersey or
L.A. aren't used to seeing those properties; we are. Actually, most
of us own one ourselves."
For more information
about country-home loans, contact your local Federal Land Bank Association
or Agricultural Credit Association.
Photo by Jim Lincoln
Published in Landscapes, a Farm Credit Bank of Texas publication