If you’re thinking about applying for a land loan, it’s important to understand the costs associated with entering into the financial transaction, such as land loan fees and closing costs that cover the services and expenses required to close a loan.
While the total dollar amount of closing costs will depend on where the farmland is being sold, the value of the property being transferred and the lender and loan type you choose, here’s what you can typically expect to pay and the types of closing costs you may encounter.
What can I expect to pay?
Average closing costs typically run between two and five percent of the loan amount. You can pay for the fees with a check, wire transfer, or, in some cases, these fees can simply be rolled into the loan balance.
Once the details of the transaction are known, your lender will be able to provide you with an accurate fee estimate for your specific land loan.
What are the land loan fees?
Before you buy or refinance farmland, review this list of fees you might expect as you finalize your land loan:
- Farmland Appraisal/Collateral Evaluation
The purpose of a land appraisal or collateral evaluation is to determine the fair market value of a property. During this process, a licensed appraiser or a qualified evaluator develops an independent and impartial analysis of the land by evaluating its location, condition and comparable sales in the area.
An appraisal or collateral evaluation offers reassurance to the lender that the property being used as collateral is adequate to secure the loan.
One advantage to working with Farm Credit Services of America is that they have an in-house certified appraisal team, allowing them to offer a competitive flat fee and average appraisal times of less than two weeks.
- Title Opinion
Verifying a clear title will ensure the buyer receives full rights to the property in a purchase. In a purchase or a refinance, the lender needs to secure the title to the property to make sure they are in a first lien position and can hold the land as collateral. The title search is completed using property records in the county where the land is located.
- Title Insurance or Abstracting
The abstract of a title is a condensed history disclosing the details of a property’s public record. However, an abstract does not guarantee the validity of a property’s title. That’s why some land buyers choose to purchase title insurance.
Unlike other types of insurance that protect you against loss from a future occurrence, title insurance protects you from a title error that has already occurred such as document forgery or a mistaken legal interpretation of a will.
- Credit Report
Once you have submitted all required financial information to the lender, the lender will likely pull your credit report and analyze your credit score and history. Your score will play an important role in determining the interest rate you’ll get on your loan, and your lender may charge you a fee to cover their cost of obtaining the report.
- Flood Hazard Determination
Flood hazard determination identifies whether accretion ground or a property is located in a flood zone, if you are required to purchase flood insurance and if federal flood insurance is available. Typically, flood determination occurs during the loan processing stage so that your lender can notify you of your risk early in the land buying process.
- Filing or Recording Fees
Finally, filing or recording fees cover the costs of the services provided by the clerk or recording agency maintaining the official documents associated with your property. Recording fees are generally charged by the county where the land is located.
Plan Ahead
Don’t let closing costs sneak up on you in the final stretch of the land buying or refinancing process. Plan to budget for these fees as you save for a down payment, compare land lenders and research your land loan options.
