Many recreational land buyers have never financed a rural property before, so it’s important to know some basics as you start your land search.

As part of the PotlatchDeltic Preferred Broker Network, who help buyers around the country, we know that it’s important to work with lenders that offer extensive experience in financing rural properties. In Idaho, where our brokerage handles property sales, one of our referring partners is Freedom Northwest Credit Union, who knows rural land financing inside and out.

With this in mind, here is a Q&A with Scott Garrett, President/CEO of Freedom Northwest, on financing a rural land purchase.

Q: What are some tips for recreational land buyers who want to finance their property?

A stable income and good credit, along with cash down, are keys. Borrowers should plan to have enough cash down to cover closing costs and to put 20% down on the purchase of the property. A larger down payment may be required and can even be beneficial, as that can also help secure better loan terms.

On large deals, a larger percentage down payment may be needed. Sometimes, borrowers leverage real estate they already own or have substantial equity in to help finance a recreational land purchase. Also, using an existing primary residence as additional collateral can help satisfy loan-to-value requirements, helping borrowers need less cash at closing.

Q: What are some common mistakes land buyers make as they are working through financing?

Some potential borrowers spend all their available cash paying off other debts prior to applying. I advise waiting until you are working with a lender before deploying cash reserves to pay off other debts.

The lender can help guide these choices based on cash-down requirements and available terms, helping the borrower make the best use of cash reserves.

Q: Are there certain things to look for in financing land beyond getting a favorable interest rate?

A borrower should always consider loan fees as well as any requirements for development on the property. Some lenders require land development, such as building a structure within a certain time period, while other lenders may have no such requirement.

The borrower should also pay attention to the loan structure. For example, how long is the rate fixed? And does the loan note have a balloon payment?

Q: Are you seeing more buyers financing land purchases these days in your area of Idaho?

Yes! Land lending has been very robust, especially since the COVID pandemic, as many buyers are migrating to rural Idaho seeking larger parcels and more space. Improved high speed internet access in rural locations has allowed many people to work from home while living the rural lifestyle.

Q: Are there advantages to financing a land purchase vs. paying cash?

There are some advantages to financing a purchase, which keeps a portion of your cash liquid. That said, every situation is different and much of it depends on the buyer’s specific plans for the property. Also, if business entities are involved, the borrower should seek the advice of an accountant.

Q: What else should property buyers know as they consider financing a recreational land purchase?

The borrower should always be sure the property has acceptable access and that the access is not cost-prohibitive or difficult to build out. The borrower should consider their intended use of the land and what expenses, in addition to the purchase, remain ahead. For example, will a road, fence, well, power, or septic need to be installed? Also, buyers might explore if high speed internet is available.


Kirstin Darry

Managing Broker of the St. Maries, Idaho office for Northwest Land and Lifestyle Properties, a member of the PotlatchDeltic Preferred Broker network.