What to Know BEFORE You Buy
A home in the country, far away from traffic jams, noisy neighbors and crime, is the dream of more than a few city folks. But buying and financing a country dream home is much different than buying a home in the city. Before making that move, take time to research how country-home loans are made.
Farm Credit lenders have been making rural-home loans for nearly a century. In the past, rural-home customers primarily were full-time farm and ranch families who lived and worked on the same land. But nowadays, the typical customer may have little or no farming experience.
"A major factor driving the country-home market is technology," says Tim Knesek, senior vice president of Capital Farm Credit in La Grange. "Technology has allowed people to telecommute, and that makes an hour-long drive into Houston more palatable.
"These are usually two-career families who have good jobs and the income to build large homes," he says. "They want their children to enjoy a small-town environment and schools, while they work from home part-time and are close enough to drive into the city part-time."
Not City Subdivisions
Because many country-home buyers have not grown up in the country, they are not always aware of the nuances of buying in the country. Unlike urban residential developments, rural acreage sometimes may have limited access to community water and sewer systems. Sometimes amenities like high-speed Internet or cable service are more limited, or costly to acquire.
"On a house in town, buyers are used to being on water and sewer systems, and in areas with restrictions," says Knesek. "But outside the city limits, owners should be aware of needed infrastructure costs like water wells, sewer systems and electrical connections."
Maintaining Ag Exemptions
Most likely, the property will have an existing ag-use tax exemption, which significantly lowers the owner's tax bill. First-time country-home buyers often are not familiar with the requirements for maintaining an ag exemption, and commercial lenders sometimes require the buyer to rescind the exemption before making a rural-home loan.
Not so at Farm Credit. "As soon as we finish at the closing table, we encourage our customers to go directly to the Appraisal District office and find out what they need to do to keep that exemption in place," says Joe Hayman, chief operating officer for Texas AgFinance in Robstown.
Check on Insurance
Farm Credit lenders say another common surprise for country-home customers is the difficulty in securing homeowner's insurance. "Customers naturally assume that their current insurance carrier will automatically pick up coverage on their new home, but that is not always the case," says Hayman, noting that many insurance companies won't underwrite policies outside the city limits. "Farm Credit has been doing these loans for so long, we can help customers find insurers who do write rural policies."
Financing Options Abound
Today's country-home buyers have a dizzying array of financing options, thanks to the secondary market's entrance into rural-home lending. "The secondary market totally changed the housing market for us, by giving us greater flexibility and options," says Hayman. "We now have more tools in the loan officers' toolbox and are more likely to meet the needs of virtually any applicant." Today, Farm Credit lenders offer:
Variable-Rate Loans. Customers wanting to take advantage of low interest-rate markets can choose variable-rate mortgage loans, with Prime- or LIBOR-based floating rates for up to 15 years. These loans are ideal for moderately priced homes in rural areas with populations of less than 2,500. Because these loans are kept in Farm Credit's in-house portfolio, these customers can receive the benefits of their cooperative ownership in the association. These benefits include:
Patronage Dividend Payments. "We are a co-op, and our borrowers purchase stock and are paid dividends," says Penny Hall, assistant vice president of real estate services with AgTexas Farm Credit Services in Fort Worth, whose association routinely has paid dividends for years. Like AgTexas, Capital Farm Credit says its patronage payments make the association very competitive. "On average, our patronage dividend program has reduced our borrowers' cost of money by approximately one-half percent," says Capital's Knesek. "Of course, the dividend payment isn't guaranteed to occur every year, but I can guarantee that the mortgage company or bank down the street won't pay one."
Funds Held Accounts. On loans kept on the association's books, borrowers can benefit from a Funds Held Account in which deposits earn interest and can be used to pay loan installments or withdrawn for other purposes.
Fixed-Rate Loans. Fixed-rate loans continue to be the most popular with home buyers. "On acreage property, most mortgage companies can only finance up to 10 acres," notes Hall. "We can do the acreage and the home in one loan, which saves the customer closing costs - and they only have to make one payment."
Farm Credit associations can lend up to 95 percent of appraised value on 30-year fixed-rate loans, which are then sold to secondary market lenders like Fannie Mae and Farmer Mac. There are no loan minimums and no restrictions on locations within city limits.
Construction Loans. One-time closing options enable borrowers to close on the permanent loan at the same time the construction loan is closed. Once the home is complete, the customer can opt to reprice the loan to take advantage of declining rates, or refinance it into a fixed-rate loan.
Repricing. Farm Credit offers unique repricing services not typically found elsewhere. If market conditions are favorable, for a small fee a customer may reprice a loan to receive a lower rate and lower payment. "To reduce payments on a commercial lender's loan, they usually would have to pay for completely refinancing the loan. Repricing is a huge financial benefit for our customers," says Knesek.
The Difference: Knowledgeable Service
In today's highly competitive mortgage-lending market, all lenders offer fairly similar products. That means the key to competitive advantage becomes the lender's knowledge and service.
"When deciding on a lender, what it really comes down to is who you trust to know what they're doing," says Hayman. "We've been doing this since 1917 and we know how to make home loans outside the city limits better than anyone. Underwriters in New Jersey or L.A. aren't used to seeing those properties; we are. Actually, most of us own one ourselves."
For more information about country-home loans, contact your local Federal Land Bank Association or Agricultural Credit Association.
Story by Sue Durio
Published in Landscapes, a Farm Credit Bank of Texas publication