Land loan fees and closing costs are often an overlooked expense for land buyers when completing a farm real estate transaction. 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.
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 land 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 farmland or refinance farmland, review this list of fees you might expect as you finalize your land loan:
The purpose of a land appraisal is to determine the fair market value of a property. During this process, a licensed appraiser develops an independent and impartial analysis of the land by evaluating its location, condition and comparable sales in the area.
An appraisal protects both the farmland buyer and the lender by verifying the property is worth as much as the amount you want to borrow.
One advantage to working with Farm Credit Services of America or Frontier Farm Credit 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.
Titles ensure your right to own a property and sell it in the future. A title opinion is a written report from an attorney explaining the state of ownership of the land and whether any easements or issues exist that could cause a land buyer not to receive a clear title.
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.
At some point in the loan application process, your land lender will run a credit report to check 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.
For more on interest rates, review our article on how to get a better land loan rate.
Flood Hazard Determination
Flood hazard determination identifies whether a property is located in a special flood hazard area, if the borrower is required to obtain 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.
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.