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Learn Everything About Land Loans and Farm Credits in New Mexico

An Overview of Land Loans in New Mexico

Land loans in New Mexico are the same as any other loan people would take out to make a big purchase. However, instead of financing a home or car, a New Mexico land loan is designed to help investors interested in land parcels. Generally, taking out a New Mexico land loan is the same as taking out a mortgage, but clients need to meet higher standards for creditworthiness. 

Financial institutions view land loans as "higher risk" than other loan types, hence they have higher interest rates, shorter repayment schedules, and more significant down payments. Once a borrower pays back their loan, they will own their New Mexico land lots and can develop their new parcels—provided they abide by New Mexico's zoning requirements. 

Types of Land Loans Available in New Mexico

The types of land loans in New Mexico are similar to those offered in other US states. Most often, issuers use the land's quality to determine the value of a loan. The less developed land lots are, the higher the risk from a collateral perspective. So, even though raw land loans may be the least expensive, they tend to carry higher interest and down payment requirements. By contrast, developed land will typically cost more, but it may have lower interest rates and flexible payment schedules. 

    The three primary land loan types in New Mexico are as follows:

  • Raw Land Loans: "Raw land" is any New Mexico territory with virtually no development. People who buy parcels of raw land shouldn't expect easy access to paved roads, septic systems, or electricity. 
  • Unimproved Land Loans: An unimproved land parcel will have more development than raw land, but it's not ready to build a property right away. Often, these lots have access to essentials like clean water, sewage, and electricity, however it will take more work from the land owner to maximize this land's potential. 
  • Improved Land Loans: Lastly, improved land is essential for property development, plus easy access to paved roads. These land parcels have the highest collateral value because they are the easiest and quickest to convert into property developments. 

Interest Rates for Land Loans in New Mexico

There's no "standard" interest rate for a New Mexico land loan, but borrowers should expect to pay higher than a standard mortgage. Remember, New Mexico land loans are often considered "high risk," which means issuers tend to charge higher interest rates. The interest on a New Mexico land loan can exceed 5%, especially for those buying less developed land parcels. 

What are the Repayment Terms for Land Loans in New Mexico?

Typically, land loans in New Mexico have relatively quick repayment schedules, high interest fees, and significant down payment requirements. While every financial institution has different rules for taking out a New Mexico land loan, it's common to charge a down payment of 20% or more and a payment schedule of about five years. Interest rates are variable for land loans, but they are often in the 5% range. 

What are the Benefits of Land Loans in New Mexico?

New Mexico has a rich and diverse cultural heritage that attracts many visitors. Thanks to its extensive Native American and Hispanic populations, "The Land of Enchantment" is a dynamic destination for culinary and cultural tourism. Add in multiple UNESCO World Heritage Sites and scenic topography, and it's clear why many people are flocking to visit New Mexico. Anyone with a background in tourism may find unique opportunities to purchase land and develop properties in New Mexico. 

Besides tourism, New Mexico has a long history in the agriculture and livestock sectors. To this day, farmers and ranchers in this Southeastern state produce high quantities of essential crops and foodstuffs like milk, grains, beans, and peas. Anyone interested in the cattle industry will also find plenty of exceptional farmland throughout New Mexico. 

New Mexico is also becoming an attractive home base for many families and young professionals. Industries like higher education, aerospace, technology, and film are gaining traction in this state. The US Military also has a notable presence in New Mexico. Those interested in developing residential or rental properties in New Mexico may find lucrative opportunities near metro areas like Albuquerque. 

Are there Disadvantages of Land Loans in New Mexico?

One of the most significant disadvantages of New Mexico is its higher-than-average crime rate. According to most estimates, New Mexico's violent and property crimes are above the US national average. Prospective land investors should familiarize themselves with crime statistics in whatever county they're looking into. It's also essential to review insurance policies to protect any construction plans you may be interested in. 

Also, since much of New Mexico is a desert, residents should prepare for blistering summers. It's common for temps to go above 100°F in the summer, and many areas of the state may not be the best for growing crops. Always take the time to inspect your land's topography and average climate to see if it meets your expectations—especially if you intend to grow crops on your property. 

Essential Considerations for Land Loans in New Mexico

Before buying New Mexico land, review the specific zoning laws and allowed uses in your area. Review 

your New Mexico county's laws to ensure the activities or construction plans you have for your land are permitted. Each area of New Mexico land has different restrictions for what residents can do, so make sure you're 100% certain you can use your land lots for your goals. 

It's also essential to figure out what utilities are available on your New Mexico property. At a minimum, you should know if it's OK to develop a well and use a septic system in your property. 

If you're most interested in agriculture, you must order a soil test to determine which crops are most suitable in your zone. Please also ask whether your land is in a flood-prone region. Although it's not common to associate New Mexico with flooding, flash floods can happen in many areas of the state.

Resources for Land Loans in New Mexico

Hiring a professional land broker is an excellent way to get tailored guidance on New Mexico land opportunities. Working with a New Mexico land broker firm is not essential, but it may help new investors spot attractive opportunities. New Mexico land brokers can also help negotiate favorable land loan contracts and handle tedious legal paperwork.

The national Farm Credit System (FCS) is another great resource for New Mexico farmers. Initially created as a branch of the federal government, the FCS is now an independent network of banks and credit unions dedicated to supporting the nation's agricultural sector. FCS estimates suggest New Mexican farmers took out $3 billion in loans in 2021, and there are at least 2,400 borrowers in the FCS's registry. 

How much can I borrow for a New Mexico land loan?

Each bank that issues New Mexico land loans has different stipulations for how much they're willing to give. However, there's no official "cap" on how much you could take out to finance your land purchase. The amount you'll take from a New Mexico land loan depends on the value of the underlying property and your financial institution's policies. 

How long do I have to repay the New Mexico land loan?

As mentioned above, New Mexico land loans typically have a faster repayment schedule than more "traditional" loans like mortgages. You'll most likely have to pay for your New Mexico land within about five years. Typically, raw land loans have shorter repayment schedules because the underlying collateral has less intrinsic worth than developed land. 

Can I use the New Mexico land loans for other purposes?

If you're requesting a land loan from a regional bank or credit union, you can't use this money for other purposes. However, anyone in New Mexico's agricultural sector could request a Farm Credit from the FCS for dozens of non-land-related uses. 

Plenty of farmers and ranchers in New Mexico have used Farm Credits to help fund activities related to their businesses. For instance, you could use a Farm Credit to improve telecommunications in a rural area or scale a manufacturing facility. Those interested in borrowing funds for anything related to agriculture in New Mexico should speak with an FCS bank for details on potential use cases. 

What are the risks of defaulting on a New Mexico land loan?

Like defaulting on any other loan, there are severe financial implications to defaulting on a New Mexico land loan. Not only will you lose the right to claim these New Mexico land lots, but your credit score will also take a hit. It will be more difficult to request funds from financial institutions with a loan default on your records. 

What's the standard land loan application process in New Mexico?

In most cases, you'll need to work with a local financial institution like a credit union to secure a New Mexico land loan. These regional organizations are more willing to take on the risk of a land loan. Plus, since these banks are closer to the land lots, they can easily assess the land quality and determine a fair valuation. 

After borrowers find a land loan issuer in New Mexico, they'll need to submit personal and financial details such as a credit score and debt-to-income ratio when applying for a loan. Banks also usually ask for detailed plans for land development to see how you intend to use your property. 

If the bank approves your land loan, you'll need to pay the requested down payment and regular monthly installments plus interest. The land won't technically be yours to "own" until you repay the loan in full.