The Walden Effect: Farming, simple living, permaculture, and invention.

Using a mortgage to buy a homestead

Athens Ohio airbnb

Last time I bought land, I was just out of college and dirt poor. I saved every penny, hoping to achieve $10,000 within the next decade and buy a 10-acre farm with cash. But when I was $2,000 in, a very kind friend jumped into the breach and offered me an interest-free loan on a larger amount. I bought the largest ugly-duckling property I could comfortably afford, paid the friend back several years later when that property allowed us to live off our microbusiness, and was endlessly grateful for the jumpstart.

This time around, Mark and I are being more conventional. We've calculated the likely selling price for this place based on recent sales in the region, and we're looking for properties in that same range. Rather than selling before buying, though, and being entirely debt-free, we decided to get pre-approved for a mortgage so we could spend a little more money up front but do things in the easy order --- move before we put this place up for sale.

Tear-down real estate

In the process, I've learned a lot about land buying that I thought the conventional among you (probably everyone except younger me!) might benefit from. First of all, by using a site like Lending Tree to compare rates, you're asking to join masses of email and phone lists --- beware! None of those potential lenders will answer a simple question --- they all want every ounce of your personal and financial data so they can take you all the way to preapproval. Meanwhile, if you're self-employed, the data those intaker officers need dives all the way down to your tax returns from the previous three years. Wow, that's a lot of information to share with looky-loos.

And yet, after extensive research, I learned that rates aren't even set at the preapproval stage and that most lenders will give you approximately the same rate as all the others, with that amount depending on your financial portfolio and credit history. So you might as well instead select a lender based on reviews and other factors, such as those I discuss below.


The next hurdle to bridge is the difference between buying a house and buying an acreage. 10 acres seems to be the dividing line between the two, but it also matters whether the dwelling passes muster (many owner-built homes and old farm houses won't) and whether your home-to-be is on wheels (a higher interest rate) or on a permanent foundation. Keep in mind, also, that if you buy a home instead of land, you'll need to pay home owner's insurance as a mandatory part of your mortgage agreement.

The trick if you want to buy a farm rather than a house with a few acres appears to be going with a local bank rather than with a big company. By contacting a bank in the community we plan to move to, we were given the option of choosing a non-federally-approved loan that will cover unimproved land or a federally-approved loan that won't. The former has a lower interest rate...but one that will change over time (a problem for us only if we don't manage to sell this property within the first fixed term of three to five years). Improvement level also makes a difference on properties that lack domiciles, so pay attention to the presence or absence of developed water, electric, and septic on potential properties. Finally, the percent you're expected to pay yourself will vary depending on which type of property and type of loan you choose to pursue.

Old camper

Phew! Learning what I just put into this post took about a week and a half of phone calls, web searching, and emails to ferret out. On the plus side...youthful me's anti-debt ways means our credit is excellent so we just got preapproved. Now we're ready to really get serious about this move.

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About us: Anna Hess and Mark Hamilton spent over a decade living self-sufficiently in the mountains of Virginia before moving north to start over from scratch in the foothills of Ohio. They've experimented with permaculture, no-till gardening, trailersteading, home-based microbusinesses and much more, writing about their adventures in both blogs and books.

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Wow So much useful information.!!!

Comment by Donna Fri Jul 21 11:52:47 2017

Hi Anna and Mark,

I got into the habit of making the money first. Then I just have to be careful with what I do with MY money. No parasites sucking my blood.

Good luck to you both, John

Comment by John Fri Jul 21 13:53:19 2017

For most people the reality is that you need a mortgage to buy property.

But I've been taught (and agree) that debts are not a good thing and should be paid off as soon as practical.

So I would advise you to get a mortgage that allows you make extra payments without penalty if opportunity presents itself.

I trust you won't be buying a McMansion. :-) Yet you should think carefully about how much land you can and will actually use. While it might be nice to have a large buffer around your homestead, you will be paving for it.

On the other hand, one reason to buy more land than you need right now (if you can afford it) would be as an investment. Maybe to sell it later. Or for a long-term low maintenance crop. An acquaintance who now farms in New Zealand used part of his farm to plant a forest for timber that will be mature and be harvested when he retires.

Comment by Roland_Smith Fri Jul 21 18:23:40 2017
If you can find a good one, a mortgage broker is a fantastic resource to get great rates, make sure that you get a mortgage that fits you well, and generally help out all around the process.
Comment by Stephanie Fri Jul 21 19:21:15 2017

Maybe a mortgage is a good way. Maybe something else will come up. Maybe what you need today is a deadline. For example you could say if we haven't raised the money for what will make us happy by December 18 we are going to get a mortgage.

Transition times can be pretty nerve wracking. May you make it sanely to the other side.

Comment by Maggie Sat Jul 22 08:35:09 2017

I can share buying experience from years back- in 1997, I and my then wife were looking for a place semi country, and found what was five acres 40 minutes from my work that had a well remodeled mobile home on it- from the road, one could not tell it was a mobile home, it had a roof over, an addition with a nice potbelly wood stove, and had been sided in cedar.

The asking price was $42,000. I very soon discovered that the mobile home was not considered an asset to the property, and that we would basically be buying raw land. I had to come up with about 25% down to even get a bank to speak to me! At the time, this was not going to happen. Manufactured homes depreciate like a car, stick built homes do not.

A month later, we were able to buy a conventional home on a lot for 68,000 with 2% down on an FHA loan.

I wondered how all these low income folks had mobile homes in the country, I discovered the manufactured home industry basically finances itself at higher rates than buying a conventional home.

You find the land, they buy it, put in the well and septic, set up the house and you sign you life away for a much higher interest rate than a conventional mortgage would be.

Comment by Eric Sun Jul 23 22:17:53 2017
Happy to hear you got pre-approved. One other option that rural looking folks might explore is the Farm Credit Service system. It is a network of borrower owned lending institutions which can do property, other rural loans, and such. My experience is that they were incredibly helpful and slightly lower in their requirements than conventional lenders (whom I couldn't get to touch undeveloped property, but did use recently for an investment property . . . they want to see everything and then some.)
Comment by Charity Wed Jul 26 07:50:30 2017

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