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What is the Down Payment Requirement on Recreational Land?

Many dream of their own land to hunt, fish or get away from reality. FCS Financial offers financing for recreational land. The most frequently asked question is, “How much down payment do I need?” The answer is “It depends.” Repayment source, the length of loan and payment frequency help determine the down payment.

Length of Loan

The length of the loan, or the loan term, is the amount of time the loan is amortized. This means the number of years or months that you are scheduled to repay the loan. The typical term for a real estate loan ranges from 15 – 30 years. A shorter loan term means a quicker repayment and faster reduction of principal creating less risk for both you and the lender.

Payment Frequency & Repayment Source

FCS Financial staff work with you to determine the best payment plan to fit your income stream. They help you identify the income sources and frequency that will be used to make loan payments and then match that to either monthly, annual or semiannual payment options.

Borrowers who plan to repay their loan from a monthly wage earned will see the most value from a monthly pay loan.  The payment is matched to the income frequency and, because payments are made more frequently, reduces principal and total interest cost over the life of the loan.  

Some recreational landowners receive an income from their land, which is often once a year. It may be from harvested crops, a rental payment from a farmer or a CRP payment. For them, making an annual payment on their land when they receive the income from it makes sense.

A monthly pay loan may require a smaller down payment than a loan with an annual or semiannual payment because you are paying on it more frequently and reducing principal at a faster rate.

Financing Land with a Split Note

A unique loan option at FCS Financial is the split note. Some recreational buyers take advantage of this option because they will be using both wage income and income from the land to make the loan payments. A split note divides the borrowed capital into two loans. Each loan has a different payment frequency to match the income that is making that payment. In most cases, one note will be an annual pay and the other a monthly pay. Here is an example of when a split note is useful to a recreational landowner.

John wants to buy 40 acres of land to use for hunting and a getaway for the family.  He purchases the land for $100,000 and plans to finance $70,000 over a 20-year term.  Ten of the acres are enrolled in the USDA Crop Reserve Program (CRP). He will receive an annual payment of $1,200 from USDA for those 10 acres.  John uses a split note to purchase this 40-acre tract. The $1,200 CRP income will be used to make an annual payment and the remainder of the purchase will be repaid monthly using non-farm income.

Can I use Collateral as Part of my Down Payment?

Collateral is a tangible asset that can be pledged toward the purchase or down payment. In the case of a real estate loan, the collateral must be other real estate. It must also be owned free-and-clear or financed by FCS Financial. FCS Financial will not secure a real estate loan with a vehicle.

The article Using Collateral to Purchase Land explains the process and provides an example to illustrate how you can use collateral toward a down payment.

Our local lending specialists are happy to talk you through the buying process and answer any questions. Complete this form to request contact or find your local lending specialist on our website.


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