Land Loans in Oklahoma: A Comprehensive Guide to Finding and Financing Your Oklahoma Land Purchase

An Oklahoma land loan is a financial agreement between a lender and a borrower that's similar to an auto loan or a mortgage. However, instead of paying off money for a car or house, land loan borrowers purchase a land parcel somewhere in Oklahoma. Like other loan types, land loans require borrowers to submit regular payments at an agreed-upon interest rate until they repay their debt.

An Overview of Land Loans in Oklahoma

Although land loans work similarly to standard mortgages, they typically have less favorable terms for the borrower. Banks and credit unions consider land loans a "high-risk" service due to the increased potential for default. Also, undeveloped and underdeveloped land isn't as valuable and re-sellable compared with developed properties. For protection, financial institutions that issue land loans typically charge higher interest rates and require more significant down payments. People also need a relatively low debt-to-income ratio and a high credit score to secure an Oklahoma land loan.

What are the Main Types of Land Loans in Oklahoma

Oklahoma banks and credit unions use one of the following classifications when setting up a loan's terms:

• Raw land loans: If an Oklahoma land plot is "raw," that means it has zero development and no easy access to essential services. For instance, these raw land plots won't have sewage systems, wells, electricity, or paved roads.
• Unimproved land loans: "Unimproved" or "underdeveloped" Oklahoma land has essential features like sewage or electricity, but it still needs significant work to become fully habitable. Since unimproved land lots are a step up from raw land loans, they tend to cost a bit more, but they may have lower interest rates.
• Improved land loans: Also called "developed land," improved land in Oklahoma has everything landowners need to start most construction projects. Since improved land already has inherent value, the total price for these parcels is higher than for raw or unimproved land.

Of these three Oklahoma land loan types, raw land loans are the riskiest from a bank's perspective. Therefore, borrowers should expect the strictest requirements and steepest interest fees if they're interested in purchasing raw land in the Sooner State. By contrast, improved land costs the most, but it typically has more flexible repayment terms.

How do People Qualify for Land Loans in Oklahoma?

Every financial institution uses different criteria to accept land loan borrowers in Oklahoma. Therefore, new investors need to speak directly with a particular loan issuer to figure out the specific terms of their agreement.

That being said, land loans typically cost less than a mortgage, but prospective borrowers have to meet higher standards. It's only likely someone will get an Oklahoma land loan if their credit score is above 700 and their debt-to-income ratio is below 30%. Land loan borrowers must also submit a detailed plan for how they intend to use their new property. Banks want to see people have a clear vision for their land and the resources to achieve their goals.

What are the Benefits of Getting Land Loans in Oklahoma?

Oklahoma has some of the most prized land parcels in the Great Plains territory. To this day, the Sooner State is a leader in many lucrative industries, such as cultivation, natural gas production, and oil extraction. Some products that Oklahoman landowners can raise or grow include veal, beef, poultry, wheat, and cotton. Most often, people who purchase land loans in Oklahoma want to use their land to enter the energy, livestock, or agricultural sectors.

Outside of energy and agriculture, Oklahoma has a dynamic modern economy in metropolitan areas like Oklahoma City and Tulsa. As more families and young professionals move to Oklahoma for jobs in technology, finance, aviation, or higher education, many areas are now prime destinations for property development. Anyone interested in building or managing residential or rental properties can find potential opportunities with Oklahoma land.

Oklahoma is also desirable for many people interested in retirement or exploring the great outdoors. Whether people are interested in fishing, hunting, hiking, or kayaking, Oklahoma has many notable parks and preserved areas for getting in touch with Mother Nature.

What are the Interest Rates for Land Loans in Oklahoma?

Interest rates on loans are constantly in flux, so borrowers must consult the Federal Reserve's current rates for the most up-to-date information. However, Oklahoma land loans always have higher interest rates than standard mortgages. Remember: Land loans are a "high-risk" investment from the bank's perspective. Land loan issuers charge higher interest rates to cover themselves in case of a default.

Again, it's difficult to say what the "average" land loan interest rate is today in Oklahoma, but borrowers should expect to pay around 7% or more.

What are the Repayment Terms for Land Loans in Oklahoma?

The repayment terms for Oklahoma land loans are less flexible than other loan types. For starters, borrowers have to put down a steep down payment of about 20%. Most land loans also have short repayment schedules of 2 - 5 years. As mentioned above, most Oklahoma land loans also have high interest payments in the 7% range.

What Should Investors Consider Before Buying an Oklahoma Land Loan?

Just because Oklahoma has a strong reputation for agriculture and energy, that doesn’t mean land buyers should assume they can grow, extract, or build anything on their property. Prospective Oklahoma landowners need to carefully review the benefits and limitations of their target land parcels. It's best to work with a professional surveyor to evaluate your land's potential use cases and soil type. New investors should also reach out to leaders in their Oklahoma county to figure out all of the zoning and construction laws.

It's also essential to take Oklahoma's severe weather conditions into account. This state is prone to many extreme natural hazards, such as hail, tornadoes, and thunderstorms. Research typical weather patterns in your county and be sure you know the insurance requirements wherever you plan to build property.

What are Farm Credits in Oklahoma?

Sometimes people use the term "Oklahoma Farm Credits" interchangeably with "Oklahoma land loans," but there's a difference between these financial tools. Notably, a "Farm Credit" is a loan issued by the Farm Credit System (FCS). Although the FCS was initially a federal organization, it's now a network of banks and credit unions independent of Washington, DC. Each member of the FCS focuses on helping people in America's agricultural sector. In addition to land loans, the FCS can give Farm Credit loans for dozens of other purposes, such as equipment maintenance, scaling operations, or manufacturing plants.

According to the FCS's website, over 10,000 Oklahomans borrowed roughly $4.4 billion in Farm Credit loans in 2021. Anyone interested in applying for a Farm Credit loan in Oklahoma can contact an FCS-registered bank for more details on their qualifications.

Finding the Right Land Loan in Oklahoma: Where to Start?

The first step to buying the "right" land loan in Oklahoma is to establish why you're getting into this market. While that may seem obvious, some people rush into getting a land loan without clearly understanding their goals or what's possible on their property. Credit unions and banks need to see detailed plans of what and how you will develop your land once you get it. Therefore, you need to inspect various land lots and review the zoning laws in these areas. Order a thorough survey of the parcels you're interested in and read through local land ordinances before deciding which site you want to invest in.

Once you've found Oklahoma land lots that fit your expectations, contact regional banks and credit unions to see if they offer land loans. Typically, national banks don't sell land due to the risks associated with these loans. Also, it's more difficult for national banks to assess the quality and value of land parcels, which means you'll most likely get Oklahoma land at local banking institutions.

After finding a bank willing to issue a land loan, you can review and renegotiate the terms and conditions until you're satisfied. Loan buyers also need to submit personal and financial info to their bank to get a loan approval.

If you're struggling to get started in this process, it may be beneficial to work with a professional Oklahoma land broker. Although you don't need a land broker to secure an Oklahoma land loan, these agents can guide new land buyers to potentially valuable opportunities and negotiate favorable loan rates. Anyone new to buying land in Oklahoma should consider giving a professional land broker a call for expert guidance.

There Alternatives to Land Loans in Oklahoma?

Farm Credits are an alternative way to finance land purchases in Oklahoma. However, the Farm Credit System (FCS) only focuses on people in Oklahoma's agricultural sector. Therefore, if you're interested in cultivating crops or rearing livestock in Oklahoma, consider taking out a Farm Credit from an FCS-registered bank.

For more info on alternative ways to purchase Oklahoma land, it's a good idea to contact a professional Oklahoma land broker. Since the agents at land brokerage firms know about Oklahoma's laws and policies, it's easier for them to find and suggest alternative investment ideas.