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Everything You Need to Know About Obtaining Land Loans With Farm Credits in Alabama

An Overview of the Alabama Farm Credit System

The Farm Credit System (FCS) is a network of over 70 financial institutions that issue loans to farmers and ranchers throughout the USA. The primary goal of the FCS is to make credit easily accessible to those working in the agricultural sector. FCS-affiliated banks are prepared to address the unique funding needs and challenges of rural families and businesses.

Recent data from the FCS shows that many Alabaman farmers have taken advantage of Farm Credits. 2021 statistics reveal the total Farm Credit loan volume for Alabama farms was over $5 billion. There were also almost 19,000 Farm Credit recipients in Alabama as of 2021. 

A Brief History of Alabama’s Farm Credit System 

The official start of the Farm Credit System goes back to 1916 when Congress approved the Federal Farm Loan Act. Although this bill didn’t create the current version of the FCS, it laid the groundwork for today’s organization. Initially, the federal government provided loans to American farmers through 12 Federal Land Banks (FLBs). The government primarily issued these loans to provide property for families living in rural counties. 

The FLBs grew in importance during the Great Depression, and Congress transformed this network into the FCS following World War II. Gradually, the FCS became independent of the federal government and now relies on debt securities for its funding. All of the roughly 70 credit unions and banks that are in the FCS are 100% borrower-owned and operated. 

What Services Does the Alabama Farm Credit System Offer?

Anyone involved in Alabama’s agriculture, livestock, or ranching industries could apply for a loan through the FCS. Although many people associate Farm Credits with land loans, Alabamans can request financial assistance for dozens of other reasons. For instance, many people use Farm Credits to expand their operations with infrastructure projects or equipment upgrades. Alabaman families could also request Farm Credits to improve sales with increased advertising campaigns and improved manufacturing procedures.

The FCS can also provide financial assistance to Alabama farmers facing unforeseen challenges. For instance, if severe weather adversely affects crop yields, Alabama cultivators could apply for emergency funds. Many Alabama farms also used the FCS to help with unexpected economic challenges during health epidemics like the COVID-19 pandemic. 

Anyone considering an Alabama Farm Credit could visit the FCS’s website and review their services in the state. People could also visit the websites associated with Alabama FCS members. For instance, a few major organizations that offer Farm Credits in Alabama include Alabama AG Credit, Alabama Farm Credit, and CoBank. 

An Overview of Land Loans in Alabama

Land loans help individuals and businesses borrow funds to pay for land parcels. Regional banks and credit unions often offer these loans at a local level. For instance, only banks headquartered in Alabama will issue land loans in this state. 

Although land loans function similarly to mortgages, they have a higher risk profile in the financial industry. For this reason, people who take out a land loan often pay steeper interest rates and down payments on their investments. Land loans also have shorter repayment schedules to help banks minimize their risk exposure. 

The Three Types of Land Loans Available in Alabama

Banks determine the price of a land loan by looking at the quality of the underlying land. “Raw land loans” sell land lots with zero access to utilities or septic systems. “Unimproved land loans” are one step above raw land. Although unimproved land still needs work, it typically has access to essential services like electricity. Lastly, “improved land loans” focus on land parcels that already have access to services like utilities, water, and paved roads. 

Typically, raw land loans are the least expensive, but they have the highest interest rates and shortest repayment schedules. By contrast, improved land loans have more flexible payment options but tend to cost the most. 

Qualifying for Land Loans in Alabama: The Essential Requirements 

Applying for a land loan in Alabama is straightforward, but the requirements are fairly stringent. Since land loans are considered “high-risk” by most financial institutions, issuers want to protect themselves from a potential default. Banks and credit unions always ask for detailed plans on what prospective landowners are going to do with their property. Borrowers also need to have high credit scores and low debt-to-income ratios. In most cases, banks only issue land loans to people with a credit score above 700 and a debt-to-income ratio of less than 40%. 

Please also remember that most land loans come with higher interest payments and shorter durations versus mortgages. Banks commonly charge down payments of at least 20% for every land loan they issue. 

What are the Benefits of Land Loans in Alabama? 

For centuries, Alabama has had a strong reputation in the agricultural sector. Although this state’s economy has diversified in recent years, it still has many opportunities for those interested in growing crops like cotton, soybeans, corn, and grains. Alabama is also one of the nation’s leading livestock exporters, especially in the cattle and poultry markets. Anyone involved in these industries will find plenty of ways to develop land in Alabama.

Besides its fertile farmland, Alabama has a growing reputation in fields like healthcare, aerospace, and higher education. More young professionals, retirees, and families are moving to Alabama to take advantage of this state’s job opportunities, affordable tax structure, and natural beauty. Those who take a land loan in Alabama can enjoy access to the amenities of modern culture and exceptional outdoor activities such as fishing, hunting, and hiking. 

Taking out a land loan in Alabama helps you take advantage of this state’s many lucrative sectors. Even if you’re not interested in moving to Alabama, you could use a land loan to fund property development, cultivation, or construction projects. Anyone with an interest in professions such as real estate, tourism, or agriculture will find plenty of opportunities with an Alabama land loan. 

How to Apply for a Land Loan in Alabama

Applying for a land loan in Alabama isn’t as simple as walking into a national bank and filling out an application. In fact, most national banks don’t offer land loan services. People interested in purchasing land in Alabama will likely work with a local agent at a credit union or regional bank. These smaller institutions are more willing to take on the risks associated with land loans. Plus, since these Alabama credit unions are nearby, they can easily assess the value of land plots and draw up legal documentation. 

To apply for an Alabama land loan, you’ll need to search local financial organizations that advertise these services. Ideally, you should find a land loan provider in the county you want to buy land in. Once you’ve found a land loan partner you feel comfortable with, you’ll have to send personal and financial data for review. After a few days or weeks, your bank should let you know whether you received the land loan. If you’re successful, you’ll need to deposit the agreed-upon down payment and start making monthly payments with interest. 

Since applying for a land loan can be challenging, many people enlist the help of an Alabama land broker. While professional land brokers aren’t necessary, they can help people find the ideal land opportunities for their interests and negotiate favorable loan terms. 

What Are the Repayment Terms for Land Loans in Alabama

Unlike mortgage loans, Alabama land loans have a quicker repayment schedule and higher interest payments. While every loan issuer has unique requirements, borrowers should expect to pay off their land loan within 2 - 5 years. 

Average Interest Rates for Land Loans in Alabama

Interest rates for land loans are always at a premium versus mortgages. The higher interest costs reflect the greater risk banks take on with land loans. Although interest rates are always fluctuating, borrowers should expect rates in the 6% - 7% range. 

Common Mistakes to Avoid With Land Loans in Alabama

Many people who want land in Alabama make the mistake of neglecting zoning and deed restrictions till after signing a land loan. Prospective land buyers also may not order a thorough land inspection to understand the opportunities and limitations of their property. Alabama landowners must know the boundaries, resources, and unique challenges associated with their land before entering into a land loan agreement. While it takes extra time and funds to figure out all of these details, they will ensure your land parcel meets your goals and expectations. 

Those interested in land loans must also consider Alabama’s unique environmental hazards. Alabama is well known for extreme thunderstorms, hail, and tornadoes. Loan buyers must consider an insurance plan to protect their property from these common weather threats. 

To find out more about Land Loans in Alabama consult with a member of the Land Broker Coop and have them give you a personal introduction to your local Farm Credit Bank Loan Officer. Between a Land Brokers Coop Member and your local Farm Credit Bank Lender they will have all of the answers you need and will make your land purchase in Alabama an easy one, call today!