Current Land Loan Rates in Minnesota

If you’re looking to purchase a vacant plot of land in Minnesota to build a home or farm on, securing financing can be the first step. While land loans tend to have higher interest rates than traditional mortgages, current rates in Minnesota remain competitive. This comprehensive guide covers everything you need to know about current land loan rates, fees, and tips for getting the best deal in the Land of 10,000 Lakes.

Overview of Land Loans

A land loan is a type of financing used to purchase raw, vacant land. It works similarly to a mortgage, where the land itself serves as collateral on the loan.

Land loans generally come with higher interest rates, shorter repayment terms, and stricter qualification requirements compared to home loans. This is because lenders face more risk providing financing without an inhabitable dwelling on the property.

Pros of land loans

• Finance up to 100% of the purchase price
• Fixed rates and payments
• Access to land for future use

Cons to note

• Rates typically 0.5% – 1% higher than mortgage rates
• Shorter repayment terms of 1-5 years
• Require 20%-50% down payment
• No tax write-off for interest paid

While land loans have some drawbacks, they enable you to secure that perfect parcel of land so you can start building your dream home or farm when the time is right.

Current Land Loan Rates in Minnesota

Land loan rates in Minnesota today typically range from 7% to 10% for a fixed-rate loan. This is around 1% higher than current mortgage rates for home buying, which are roughly 6% to 7% statewide.

Rates on land loans can vary depending on these factors:

• Your credit score and history
• Down payment percentage
• Loan term length
• Loan-to-value ratio (LTV)
• Overall demand for land financing

Well qualified borrowers putting 20% or more down can secure rates in the 7% to 8% range. Purchasers with lower credit scores or down payments should expect to pay interest rates of 9% or more.

It’s important to shop and compare rates from multiple lenders to find the best deal. Even a 0.5% rate difference can save you hundreds over the loan repayment period.

Common Loan Terms and Fees

Beyond the interest rate, here are some other land loan costs and terms to factor into your financing decision:

• Down payment – Typically 20% to 50% required
• Loan term – Often 1 to 5 years; 10-15 years maximum
• Origination fee – Up to 2% of the total loan amount
• Closing costs – $500 to $1,500 on average
• Prepayment penalties – Varies by lender; often 3-6 months interest

The down payment, term length, loan amount, and your credit will determine the specific rates and fees. Be sure to verify all costs with lenders prior to applying.

Tips for Getting the Best Land Loan Rate

Follow these tips when shopping for the most competitive land loan rate in Minnesota:

• Get pre-approved – Having a pre-approval letter in hand gives you bargaining power when putting in offers.

• Compare multiple lenders – Check rates from national banks, local credit unions, farm credit associations, and online lenders.

• Boost your credit score – Good credit saves you money. Pay down debts and correct errors on your credit report.

• Put down 20% or more – Making a larger down payment reduces the lender’s risk and can result in a lower interest rate.

• Choose a shorter term – Opt for a 1-2 year loan term if possible, as shorter terms come with lower rates generally.

• Inquire about discounts – Ask lenders if they offer any rate discounts for automatic payment or repayment history.

• Lock your rate – Lock in your rate as soon as you find a competitive quote to avoid fluctuations.

• Get help from a loan officer – Local lenders can guide you through the process and customize loan options.

With some savvy rate shopping and preparation, you can land a solid rate for purchasing and holding raw land.

Where to Get the Best Land Loan Rates

Now that you know what goes into land loan rates, where should you look for the best deals? Here are a few options for competitive rates on land financing in Minnesota:

• Local banks and credit unions – Community institutions like HomeTown Credit Union and others can offer personalized service and competitive rates. Credit unions like Affinity Plus specifically provide land loans too.

• Farm Credit Associations – For agricultural land purchases, Farm Credit associations like AgStar and Compeer have expertise.

• Mortgage brokers – Brokers like LenderFi have access to wholesale lender rates on land loans.

• Online lenders – Companies like LendingHome and LightStream offer online applications for land financing.

No matter where you apply, always compare multiple rate quotes. With a little effort, you can secure the ideal financing for purchasing vacant land in Minnesota.

Alternatives to Financing Land

While land loans are the go-to option, there are some other paths to consider for purchasing property:

• Pay cash – If you have sufficient savings, paying 100% in cash provides flexibility and eliminates loan costs.

• Owner financing – Some sellers provide their own in-house financing at below market rates.

• Home equity loan – Existing homeowners can tap home equity for a lower rate land loan.

• Loan from family – Borrowing from relatives is an option if they have the means to help.

• Crowdfunding – Crowdfunding sites like Acquire Land pool money from investors to buy land.

• ** Partnership** – Joining forces with family or friends to co-purchase land can provide more affordable options.

Depending on your financial situation, these alternatives merit exploration before resorting to a higher-cost land loan.

Is Now a Good Time to Get a Land Loan in Minnesota?

With mortgage rates recently spiking above 7%, some buyers may look to land purchases as an interim step before buying or building a home. While land loan rates are also higher compared to last year, ample financing options still exist in the 7% to 9% range.

Despite higher rates, loan qualifying is a bit easier than obtaining a traditional mortgage right now. There also tend to be fewer competing buyers for vacant land parcels than existing homes.

If your long-term plans involve building or farming in the near future, getting land financing in place now can be a strategic move. You secure the lot you want rather than potentially losing it to another buyer.

That said, don’t take on more debt than you can comfortably afford. Consider renting if you don’t plan to develop the land within the next 2-3 years. As always, speak to a financial advisor to evaluate if purchasing land is prudent for your situation.