Country Minute: Getting down to the nitty gritty details on recreational land loans 
10/18/2021
Cameron Bongard, Financial Services Office, Ionia 
Foggy day in the woods, GreenStone Country Minute October 2021

 

We’re all familiar with the reasons why someone would want a recreational land loan...but what about the how?  

 

Land is eligible for a recreational land loan if it is ten or more acres and used for outdoor adventure. It typically requires 20 percent down and offers 30-year amortization terms. If your plans change in the future, you can get then get a do-it-yourself or contracted construction loan. 

 
When our customers are on the way to secure a recreational land loan, they have a lot of questions about how it all works. Let’s really get into the details: 

 
What does 20% down really mean? 
We tell customers we will lend 80% loan-to-value of the lower of the purchase price vs. appraised value. We want the property to appraise for what the borrower is purchasing it for - or better.  

 

There may be options to refinance other property to help mitigate the 20% down. In many cases we have to appraise both properties, but any property with +20% equity or more that has been owned for one year can allow us to lend more money. This may even eliminate the need to put any down payment down. Both properties will remain under one mortgage.  

 

For interest rates, if the property pledged has a dwelling on it, we may be able to grant a lower interest rate as well. The property pledged as additional collateral could be a primary residence, secondary residence, or even recreational land with a dwelling on the property.   

 

Do we require perk tests on recreational land?  
Although it’s a good idea to perk property on the front end, if you ever plan to build on the property in the future we do NOT require perk tests. Many borrowers will complete one in the future once they have decided where they want to potentially put a deer camp or cabin in the future.  


Do we require a new survey for a purchase?  

Some borrowers will order a new survey during a purchase for their own records. We do NOT require a new survey be completed on recreational land unless there is a legal description issue in accordance with the title work, or the land is being split at the time of the purchase. If there are not legal description issues or a split taking place, this can save some time and money when buying property.  

 

What about using online GIS mapping, OnX maps, or other tools to make sure property has road frontage/access? 
As a lender, we do our best to make sure properties have legal road access from the start of the loan, because we can NOT finance landlocked property. This is a great detail to know when borrowers are looking for the right area or location to buy new recreational property. If the property doesn’t have road access, there are steps we can take, but all of that needs to happen with the seller on the front end.  

 

What about large acreage purchases vs. appraisals?  
If an existing parcel is 30 acres or more, there is potential we can use the State Equalized Value (SEV) instead of appraising the property. (The SEV is the assessed value multiplied by two.) If the SEV supports the purchase price, and the loan amount is less than $250,000, we may not need to appraise the parcel. This is a great way to save the borrower money and speed up the loan process. The SEV doesn’t accurately reflect current market value, but still is a valuable tool when we can apply it.  

 

Can you talk about property taxes on agricultural land/recreational land?  
Unfortunately, we have no way to predict what may happen to the taxes on a property after a new transaction. As a new landowner, this is something you consider to see if you qualify for a different or same property class to save some money on taxes. A great resource would be the local township in which the new land falls under. If the property qualifies, you will either sign an affidavit at closing or work it out with the township after you own the property. 
We’re looking forward to working with you to secure your recreational land loan, so please reach out to your local GreenStone branch, or visit greenstonefcs.com for more information.  

 
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