24 yo first time property buyer wanting land

[dabbayoo]

Hello all, I'm a first time property buyer and I have been on the road of
pursuing my goal to purchase a small piece of wooded investment/vacation/retirement property somewhere here in pennsylvania.
When I got approved by bank of america they did everything they could to talk me into getting a mortgage for a (15,000) home. My problem is that I don't want to deal with getting a run down 15,000 home selling as is. I just want at least an acre of wooded land up to $15,000 I can (for now) go to vacation on. I am told that I will need to have $6,000 to be able to close and I am thinking about finding land being sold and financed by owner to hopefully keep the costs and terms managable but I do not know where to look. As of now I have a $3,000 down payment but it seems very hard to aquire funding for the rest of the money from a traditional lender and still be to get the land I want. I have not decided on a property yet. I'm just trying to take my time and keep a good attitude and do whatever I can to follow through with my goal. Any suggestions?

[Aldo]

I'm sure that you didn't know this, but borrowing between $10K and $25K is difficult, at best. $10K is generally the upper limit for consumer credit and $25K is generally the lower limit for mortgage financing. The money is out there, but you need to find it. If you have a good relationship with your personal bank, that's the place to start your search. The next place to search would be a local bank in the immediate area of the property. Smaller banks like to keep their money close to home.

I don't understand the need for $6K up front, especially if this will be a personal purchase as opposed to an investment. Your available $3K should easily be enough to get you into a $15K lot. Being generous, a 10% downpayment of $1500 and about $1000 for closing costs should leave enough money in your pocket for a few gallons of gas.

[dabbayoo]

thanks for the reply aldo it's always good to learn a little. But for a land loan I believe banks require %20. I think that comes to $3200 and the bank of america loan officer averaged the total closing costs to $5600. Ridiculous isn't it. I am also under the impression that a 5 year loan is the maximum term. But I do have hope in making it happen for under $4000. Hopefully a mythbuster will come tell me what I want to hear.:D

[Aldo]

Regardless of what you want to hear, I've told you what you need to hear. Maybe you didn't hear me when I suggested finding a different lender.

$5600 upfront is unacceptable. Period. With $3200 down (too much), that leaves $2400 for closing costs. I've purchased properties for many times the price you're looking at and have never paid more than about $1500 for closing costs.

I have to question your debt tolerance. With 20% down on a $15K property and a 5-year note at about 5%, you're looking at a mortgage payment of about $250/mo, $130/mo for a 10-year note, or $98/mo for a 20-year note.

[optionfl]

I am thinking about finding land being sold and financed by owner to hopefully keep the costs and terms managable the best way

but I do not know where to look. lands are all around you!

good luck

[dabbayoo]

Ok, so you are telling me I should not except paying more then 10% down and $1500 for closing costs. And that it is possible to aquire a 10 or 20 year note for a land loan from a bank right? Regardless of what I want to hear that is what I want to hear :) . If I can find some land I want, fininanced by owner I will go that route. But in the meantime I am going to go to my local bank(commerce) and apply for a land loan there keeping in mind what you say is way too much. If I don't like what they tell me, I will find a property and apply for a loan at a bank near the property. Does that sound about right? It's not easy for me to haggle with banks because when they tell me things like for a land loan lenders need 20% down and a maximum of a 5 year note I tend to believe them. If this is not the case which I believe that is what you are telling me then I'm glad I came to this site because the lender I was currently talking to is obviously bullying me around. And don't take any offense to anything I say, I'm just trying to get my facts straight. Nice dog I had an SS just like that, but she's not with us anymore :( .

[Aldo]

First of all is the question of owner-financing. If you can buy the property on a Land Contract (or Contract for Deed), the amount of the downpayment will be negotiated between you and the seller. Also, closing costs will be minimal - maybe a few hundred dollars if you use an attorney which is highly recommended. The additional higher closing costs will be paid when the note is satisfied.

If you use bank financing, the standard downpayment is 20%, however most investor-friendly banks will allow half of that to be in the form of a second mortage back to the seller. As I mentioned earlier, based on your numbers it appears that there is $2400 in closing costs. Closing costs basically consist of origination fees (about 1%), a title policy, an appraisal, the recording fees, pro-rated taxes and utilities, and misc. minor charges. That rarely adds up to more than about $1500, at least in my area. I doubt that many banks would finance $12K ($15K less the 20% down) for more than, say, ten years which would result in a $130+/- mortgage payment. A five-year note is probably more realistic. As before, if your local lenders don't want to deal with this, talking to a small local bank near the property would be the next best place to seek financing.

A possible reason for the lender you are talking to bullying you around is that they don't want to finance your deal. Let me give you an example, though this involves a contractor who didn't want the job I was bidding out. The basic principle is the same. I was taking bids for a new boiler in a 12-unit. In the end, a $14K bidder got the job. The contractors who didn't want the job (for whatever reasons) simply provided excessively high bids (one came in at $27K for a lesser product), knowing that I'd be accepting another's lower bid. Banks are no different. If they don't want a certain mortgage, they'll jerk you around until you go somewhere else.

Thanx. Yes, Sable is a great Sheltie, but she won't be with us for long. If interested, see my thread in the general forum entitled "OT - Do you love your dogs?" which contains an overview of her long and probably fatal illness.

[dabbayoo]

Great post Aldo it is highly appreciated. I am thinking that a 5 year note will be hard to keep up with at about $250+/- a month for me at the moment considering my current bills and lack of overtime. And $130+/- for ten years is just as tough considering the longer term. Maybe I HAVE to go the mortage route and try to secure a cheap home with a decent size lot.(In the middle of nowhere pennsylvania) I'm still keeping my head up and exploring my (limited) options. And best of luck to you and your little friend. It's always rough in the end. :SM096:

[Aldo]

Two added thoughts.

My replies were based on your buying the property as an investment rather than for personal use. I re-read your original post wherein you said it may be used for vacationing. If that's the case you should be able to get into it with less than 20% down, especially if the land has a home on it. Simply tell the lender that it is a second/vacation home.

If the land has a home on it and you're purchasing it as an investment, do your vacationing elsewhere for a few years and put a tenant in it. The rent will surely
more than cover your expenses, leaving you with some extra cash each month.

[Aldo]

I mentioned that closing costs should be about $1500 and wanted to qualify that with the numbers in a pending deal. I have an accepted offer and have arranged the financing for a $229K property which closes on June 30. The lender estimated my total closing costs (in writing) to be $1130.

To further qualify my numbers, I'd point out that items such as prepaid interest, pro-rated rents, pro-rated water/utility bills, and insurance premiums are not closing costs. Those charges may be due and payable at closing, but they are not a part of the closing costs.