Everything You Need to Know About Obtaining Land Loans in Missouri: A Comprehensive Guide

Every credit union and regional bank that offers land loans in Missouri has different eligibility requirements. However, anyone interested in land loans needs to meet higher standards than for traditional mortgages.

What are the eligibility requirements to get a land loan in Missouri?

Since land isn’t as easy to re-sell as a home or property, loan issuers want to see that borrowers have a strong credit score (usually above 720) and a low debt-to-income ratio (about 30%). Loan borrowers must also prove their American citizenship, age, and explain what they will do with the land. The less developed a land plot is, the more detailed plans people need to provide to obtain a loan.

What are the maximum Missouri loan amounts and terms available?

While each credit institution has a max cap on how much they’d be willing to issue to land buyers, there’s no statewide standard on how much people could take out in land loans. However, the Missouri Department of Agriculture doesn’t issue farmer land loans above $616,100 for agricultural land. Just remember that private banks and credit unions may have different maximum loan amounts.

As for Missouri land loan terms, borrowers should expect a relatively fast repayment schedule. Due to their higher risk profile, land loans usually come with 2 - 5 year expirations and down payments above 20% of the total loan value. Interest rates on land loans also tend to be higher compared with mortgages. Although the average interest on land loans fluctuates, borrowers will likely pay upwards of 7% on their Missouri land loan.

What are the interest rates and fees associated with a land loan in Missouri?

Like a standard mortgage, land loans come with interest fees borrowers need to pay every month. Since interest rates constantly change in line with the Federal Reserve’s policies, it’s difficult to give an average percentage that land loan borrowers can expect to pay. Also, the quality of the land a person buys greatly influences the interest a bank charges for a loan. Generally, raw land has higher interest rates than improved parcels because the latter has a higher intrinsic value.

All that being said, interest rates for Missouri land loans are typically higher than for a Missouri mortgage. Borrowers can expect to add about 7% in interest fees each month as they repay their Missouri land loan. The less developed your land is, the more likely you will pay even more in interest.

How do I apply for a Missouri land loan?

The application process for a Missouri land loan is virtually identical to setting up a mortgage. However, since land loans aren’t as common as mortgages, you probably won’t work with a large national bank. Instead, regional banks and credit unions tend to offer land loans to clients. Also, banks participating in the Farm Credit System (FCS) issue “Farm Credits” to Missouri farmers, which could be used to pay for land in the agricultural sector. The FCS is a network of banks and credit unions focused on helping Americans in the agricultural sector access capital. Currently, the FCS estimates over 16,000 Missouri customers took out $8.1 billion in Farm Credits in 2021. Missourians involved in farming, livestock, or ranching can find more information on banks in the FCS on this organization’s main website.

Whichever financial institution you choose, you’ll need to speak with an agent at your bank and explain the land you want and how you intend to use your property. You’ll also need to provide a detailed plan for what you want to build on your land and how you plan to achieve these goals.

If you agree to the terms of your proposed land loan, submit the appropriate personal and financial information to your partner bank. Significantly, you’ll need to show your credit score and debt-to-income ratio to your loan issuer. As mentioned above, banks hold land loan buyers to a higher standard than mortgage borrowers. You should have a credit score above 720 and a debt-to-income ratio of around 30% to increase the likelihood that your loan will get approved.

Once your bank approves your Missouri land loan, you’ll have to make the agreed-upon down payment and pay regular monthly installments plus interest. After your final payment, you’ll have full ownership over your Missouri land parcels.

Although you don’t need a Missouri land broker to secure a land loan, some people find it easier to work with a professional with experience in this field. Land brokers serve as a go-between to help prospective buyers find available land that meets their goals and a credit institution that offers the best possible loan terms. Anyone entering the Missouri land market may find a professional land broker takes the hassle out of the loan-buying process.

What are the collateral requirements for a land loan in Missouri?

The literal Missouri land lots typically serve as collateral in the loan agreement. Since it’s harder for banks and credit unions to re-sell land—especially if it’s underdeveloped—they ask borrowers to put down a high down payment. In most cases, buyers must put down at least 20% of their land loan’s value upfront and agree to steep interest repayment terms.

However, there are cases where clients can put up a property they already own as collateral. This additional property may help reduce a loan’s repayment schedule, especially if the land is developed. Loan issuers and land brokers can negotiate using a borrower’s current property as collateral for a more favorable repayment plan.

What are the repayment options for a land loan in Missouri?

The repayment terms for Missouri land loans depend on the financial institution issuing the loan. In most instances, you won’t have as much flexibility with repayment options for land loans versus mortgages or auto loans. Even if you’re applying for an “improved land loan,” your repayment schedule will be relatively short, and the down payment and interest rates will be high. Borrowers need to expect to repay their land loan within about 2 - 5 years with interest rates in the 7% range.

If prospective landowners can’t find a loan plan that suits their requirements, they could contact a professional land broker for personalized assistance. Often, a Missouri land broker can negotiate better terms for their clients or spot opportunities that aren’t on their radar. Also, the FCS offers land loan opportunities to people in Missouri’s agricultural sector. People interested in using their Missouri land for farming or ranching can reach out to FCS-affiliated banks to see if the terms for Farm Credits are more beneficial.

What happens if I default on my land loan in Missouri?

Defaulting on a loan is never good news. If you don’t or can’t repay your Missouri land loan, the loan issuer will likely seize the land you put up as collateral. You’ll also lose points on your credit score and may have a more challenging time accessing financial services in the future.

Entering a land loan agreement isn’t something anyone should take lightly. Since defaulting on a Missouri land loan can permanently impact your financial health, it’s imperative that borrowers carefully calculate how they will repay their obligation. For extra protection, loan buyers need to have viable backup strategies for loan repayment in case they suddenly lose a source of income.

What are the tax implications of a land loan in Missouri?

The taxes for land loans in Missouri vary depending on why you’re investing in these land parcels. According to the IRS, land buyers may qualify for tax deductions if they build a residential property within 24 months after taking out their loan. While these deductions probably won’t take off the entire interest payments for a land loan, they may reduce the total amount people pay. There may also be special tax breaks for people who use their land loans for agriculture or business properties. For a better understanding of the tax implications on your land loan, you could speak with an expert accountant or a Missouri land broker.

What other considerations should I be aware of when taking out a land loan in Missouri?

People thinking about taking out a Missouri land loan should always request a professional land inspection. It’s also crucial for land buyers to know the zoning laws in their territory. These two factors will help new landowners determine what they can legally grow and build on their property.

Land loan buyers in Missouri should also review the weather conditions in their chosen area. Missouri is known for dangerously low temperatures, snow, and freezing conditions in the winter season. Landowners need to be prepared for these events and research insurance policies.