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Learn Everything About Land Loans and Farm Credits in Mississippi

Overview of Land Loans in Mississippi

Land loans are a financial tool Mississippi investors can use to borrow money and purchase land parcels. Although taking out a land loan isn't as common as requesting a mortgage or auto loan, the same principles apply in all of these cases. After someone receives a Mississippi land loan, they will need to make an initial deposit and monthly payments with interest till the loan is paid off. 

The significant distinction between Mississippi land loans and traditional mortgage loans is their risk profile. Most financial institutions view land loans as riskier than other financial services, hence they tend to have higher down payments and interest rates. People who want to take out a land loan in Mississippi also need exceptional financial scores (i.e., high credit scores and low income-to-debt ratios). 

Types of Land Loans Available in Mississippi

    Like every other state, Mississippi divides its land loans into three categories based on the quality of the parcels. The current state of the land someone is interested in will determine which of the following loans they need to take out:

  • Raw Land Loans: "Raw land" refers to tracts of land with no signs of development. If someone wants to buy raw land in Mississippi, these parcels won't have any essentials like a septic system, clean water source, or easy access to electricity. Financial institutions often consider raw land loans the "riskiest" of the three options since the collateral doesn't have much intrinsic value. Therefore, if someone defaulted on a raw land loan, a bank would be left holding an asset of dubious worth. For this reason, raw land loans tend to have the highest interest payment schedules.
  • Unimproved Land Loans: Unimproved land is a step up from raw land, but it usually only has the bare minimum for property development. In these cases, there will typically be some electrical infrastructure and a sewage system, or at least the potential to easily add these to the land. Since unimproved land is between raw and improved, loans tend to have interest rates in the middle of these other land parcels.
  • Improved Land Loans: An improved land plot will have everything investors need for property development. In addition to electricity and sewage, improved land will also have easy access to paved roads. Because the land in these areas is ripe for development, banks tend to issue improved land loans with lower interest but a higher overall cost. It is also easier to negotiate a flexible term for an improved land loan versus raw or unimproved loans. 

Interest Rates for Land Loans in Mississippi

Interest rates for land loans in Mississippi are constantly in flux, so it's best to speak with a local professional to figure out the current rates. However, anyone considering taking out a Mississippi land loan should expect to pay higher rates than for mortgages. The financial institutions that issue land loans treat these services as "high-risk" investments, so interest rates are commonly over 5%. 

Repayment Terms for Land Loans in Mississippi

The repayment terms for Mississippi land loans vary depending on the type of land you're purchasing and the institution you're working with. Every bank and credit union will have different repayment terms, so investors should speak with multiple loan issuers before committing to a contract.

That being said, Mississippi land loans tend to have short repayment times, higher interest rates, and higher down payment requirements. Often, you will have to repay your Mississippi land loan within about five years and put down over 20% as a down payment. Interest rates could be over 5%, especially for riskier raw Mississippi land developments. 

What are the Benefits of Land Loans in Mississippi?

For hundreds of years, Mississippi has been one of the leading agricultural hubs in the USA. Thanks to its flat delta plains and fertile soils, this state has excellent opportunities for anyone interested in cultivating cash crops like soybeans, corn, sweet potatoes, and cotton. Mississippi is also a leader in the livestock and poultry industries. People interested in agriculture or livestock will find plenty of opportunities to develop land in this state.

Although Mississippi is best known for its agricultural sector, it has many other attractive features for land investors. More people are flocking to Mississippi to take advantage of its humid Southern weather, affordable cost of living, and easy access to the pristine Gulf Coast. Mississippi is also close to cultural & culinary hotspots like New Orleans to the south and Memphis to the north. Those interested in tourism or building residential properties may find unique opportunities in this state. 

Are there Disadvantages of Land Loans in Mississippi?

Anyone buying land in Mississippi must prepare for extreme weather conditions. Due to its coastal location, Mississippi is prone to hurricanes in the summer season. It's also common for torrential thunderstorms, tornados, and hail to move through the Magnolia State. Be sure to look into property insurance policies when developing land in Mississippi. 

Also, although Mississippi isn't solely reliant on agriculture and livestock, it doesn't have the most diversified economy in the USA. That doesn't mean non-farmers can't find opportunities with land in Mississippi, but it may take more capital expenditure and innovation. Today, Mississippi is predominantly an agrarian state with relatively little urban development. Anyone interested in densely populated cities or high-growth sectors like technology probably won't find what they're looking for in Mississippi. 

Important Considerations for Land Loans in Mississippi

Investors must carefully consider the common weather threats in their chosen territory before purchasing a Mississippi land plot. Research the recent meteorological history in Mississippi to understand the common issues locals face in this state. You should also carefully consider your insurance options to protect your property in the case of severe tornadoes, floods, or lightning.

It's also important to consider the water quality in your area of Mississippi. Although the Magnolia State uses advanced water filtration systems, there are a few concerns about pollution from the Mississippi River. Prospective Mississippi land owners should keep tabs on the National Park Service and local state agencies to better understand water treatment options in their county.

Common Mistakes to Avoid with Land Loans in Mississippi

It's common for new land purchasers to rush into the Mississippi market without doing thorough research. Although many areas of this state are suitable for farming, it's crucial to perform routine soil tests to determine which crops are most suitable for different regions. Land buyers should inspect various available plots to see if they align with their goals. Also, consider Mississippi's unique weather challenges before deciding which parcel to invest in. 

Resources for Land Loans in Mississippi

Many new land buyers in Mississippi turn to a professional land broker for personalized guidance. While land brokers aren't essential, they can help new customers identify attractive locations and negotiate agreeable land loan rates.

Many people interested in Mississippi land loans also turn to the national Farm Credit System. Dating back to before the Great Depression, the Farm Credit System (FCS) is a network of banks and credit unions that help Americans in the agricultural sector. In 2021, it's estimated Mississippi farmers took a total of $4.1 billion in loans from the FCS. Those interested in working in Mississippi's agricultural or livestock industries should seriously consider the benefits of applying for a Farm Credit.

What are the eligibility requirements for a land loan in Mississippi?

The eligibility requirements for Mississippi land loans tend to be higher than for standard mortgages. Although every institution will have unique standards for taking out a loan, people typically need credit scores above 700 and debt-to-income ratios of about 30% or lower.

How much can I borrow for a Mississippi land loan?

Many banks that offer Farm Credits or land loans have no minimum or maximum requirements for how much money a person can borrow. The amount someone will borrow depends on the land's underlying value and the restrictions at each financial institution.

How long do I have to repay the Mississippi land loan?

While repayment schedules vary from bank to bank, land loans tend to have a shorter time horizon. It's best to plan to repay a Mississippi land loan within about five years. 

Can I use the Mississippi land loans for other purposes?

Traditional land loans will only give holders the right to whatever land parcels they purchase. However, Mississippi farmers can use Farm Credits from the FCS for various purposes. For instance, the FCS has approved many loans to help farmers improve their operations with new equipment, updated greenhouses, and manufacturing facilities. Those interested in loans to improve their agricultural business in Mississippi may consider working through the FCS.

What are the risks of defaulting on a Mississippi land loan?

Defaulting on a land loan will harm your credit score, which can significantly impact your borrowing power in the future. It's ideal to enter a land loan when people have a clear repayment plan in place.

What's the standard land loan application process in Mississippi?

To apply for a land loan in Mississippi, investors first need to find a financial institution willing to issue these loans. Local institutions like regional banks and credit unions will most likely offer these financial services. The FCS is another option for those specifically interested in the agricultural sector. 

After investors find a few land loan issuers, they should compare term rates to find the most attractive schedule for their needs. To move forward, the bank or credit union will ask for personal info, financial details, and plans for future land development. If the bank approves the land loan, the loan recipient must make a starting deposit and submit regular payments plus interest.