Buying Rural Real Estate

This morning, August and I signed ~100 pages of legal mumbo jumbo and became homeowners again. YaHOO! Not just homeowners but also landowners. The property we bought includes 28 acres – that’s a whole lot in the eyes of some and just a few in the eyes of others (i.e. my husband). Having some room to hunt, fish, grow trees, etc, was my husband’s #1 real estate priority since we started this journey last summer. Turns out, buying a little land with a house is harder than you might think, even here in Mississippi, where you are never more than a few miles from “the boonies“. Along the way, we’ve learned some (truly fascinating) stuff that’s clearly not common knowledge, as only a slim sector of the population is after this sort of land/house combo. I’d thought I’d record some of what we learned here in case others find themselves in a similar situation.

1. Land Lending

In the beginning stages of the search, we sat down to determine how much property we could afford to buy, given our down payment savings and the crazy low mortgage rates available these days. Well, as it turns out, land isn’t actually “mortgage-able”, not even land with a house on it. We were surprised by this at first.

All-important lending guidelines in the mortgage industry require that there be no more than 5-7 acres attached to a house. So your typical bank loan office doesn’t want to see you under contract for a house and 28 acres. That’s too far out of the box. Their appraisal systems aren’t set up to handle that. Etc Etc.

For raw land, you can actually borrow money to buy it from specialty lending institutions called “land banks”. We have several in our area. These guys are set up to make loans on raw land, but its a little bit of a different ballgame from mortgage lending at a bank. We didn’t go down this road so I don’t know the whole story. But, I did learn that their interest rates are a little higher than mortgage rates. We were quoted about 5%, meanwhile mortgage rates were less than 3%. The terms of the loans offered also are a bit different from conventional mortgages. In our case, the 5% rate also was fixed for the first few years, and then adjustable each year after that. AND conversely to the bank mortgage, the land bank isn’t set up to lend on homes. So, unless the value of the land far eclipses the value of the house, a home/land combo is outside of THEIR box as well. That’s not the case in our situation.

To buy the property we found, we actually separated our purchase into two different contracts: one for the house and 5 acres, and one for 23 bare acres.

2. Surveys & Legal Descriptions

If you want to buy even small acreage in a rural area, you really need a recent survey. A survey is where a qualified surveyor reviews the legal description of the property and physically walks around checking that the corners of the property are appropriately marked. They check the fences and put out little flags on the property line. They make a map showing where all the structures are, and whether any neighbors’ shed is hanging over the property line, etc. This is not a cheap service either, ours cost $2000.

Our sellers had no recent survey, and they were kinda ticked at us for making a big deal about it in the beginning. But eventually they agreed to split the cost. And boy are we glad we pressed it because as it turned out, the legal description {the words on file at the courthouse that describe where your property lines are} had a major error in it. In this picture, the black lines are the property lines, whereas the red lines are the property lines as described at the courthouse.

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So the moral of this story is: Get a survey. Unless you’re buying a home in a subdivision or an established neighborhood, its really really important.

3. Home Insurance & Fire Zones

As it turns out, not all home insurance companies like to write policies for rural properties. I had no idea. Our insurance company that we’ve had for years, including our previous home owner’s policy, quoted us what we thought was a pretty high rate for such a small house. Then they quoted an even HIGHER rate if the walls of the home turned out to be wood frame construction rather than brick. (Its brick thank goodness.) We saved a bunch of money by shopping around, which is a huge hassle, but apparently some companies even specialize in rural properties, while others look at you like you’ve grown a third eye.

To generate a quote, the insurance guys have to figure out what fire zone you are in. This is a scale from 1 to 10 where 10 equals $$$ premiums. What determines your fire zone is how far you are from a fire station, whether its a volunteer fire station, and whether there are fire hydrants near your property.

Moral here: If you buy a house made out of wood, more than 5 miles from a fire station, expect to have high insurance rates. If you’re building a house, you probably want to look at have a couple of brick walls. Our house has 3 thankfully.

4. Utilities and Services

This one falls a little bit into the ‘duh’ category but I’ll list anyway. Rural properties don’t have access to the same level of services that are available in the city.

We have a septic tank at the new house to handle what a sewer normally would. We requested a septic inspection and everything checked out. However, we did learn that when it breaks, we’ll have to upgrade to a treatment plant. Septics are no longer cool with the health department.

Besides that we don’t have good cell coverage. Cable Internet isn’t available. But DSL is. And we have propane in place of natural gas.

We’re okay with all that but it’s definitely something to think about!

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About Mary-Hall

loyal southerner, exceedingly frugal, compulsive DIYer

One response to “Buying Rural Real Estate”

  1. blossomhill says :

    These all sound like what we went through although thankfully not on the scale you did! We had to have the owner put in a new well as the well they were using was actually 10 ft off the property and into the farmland next door. It had always just been a friendly handshake that allowed them to use the well but since it was hand dug it needed replacing anyway so we figured might as well let them bear that expense and not us.

    I don’t really want to but I kind of think I should call our insurance company about a fib I told when filling out the online quote form. I had no idea where the nearest fire hydrant was so I just selected the farthest possible distance but I’m pretty sure there aren’t any actual working fire hydrants anywhere near here. We are only a 1/4 mile from other houses and 1/2 mile from a highway but I’ve learned that any hydrants you do see won’t actually have enough pressure to put out a fire. Fun!

    Oh and I know this might not help but we have an AT&T hotspot for our internet and while it works alright I am consistently going over the 5g limit every month. I’ve heard great things about Exede so I’m thinking of trying that soon and lumping it with our Directv.

    I also consistently freak out about our septic tank because I’m terrified of it backing up into the house but during the inspection and pumping of it the guy said it doesn’t hurt to have it pumped often so we are going to go that route and maybe get it done every one or two years whether it needs it or not. Seems like a small expense when you consider the alternative, right?

    Yay for country living!

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