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So you’ve found your perfect acres: rolling hillsides for a cattle ranch, fertile soil for a new row-crop operation, or a beautiful tract of land to rent out to recreation enthusiasts. Whatever you plan to use the land for, you need to pay for it somehow. That’s where a land loan calculator comes in handy.
With land prices in Texas on the rise, it’s important to understand exactly how much you can afford before signing your loan paperwork. So if you’re in the market for a land loan, farm loan, or agribusiness loan, a land loan calculator is a helpful tool to estimate your total interest and principal payments.
Owning productive, profitable, or just downright pleasant-to-live-on Texas land isn’t always cheap. But it can be within your budget, with a little advance planning.
Before crunching the numbers, though, it’s helpful to understand exactly what a land loan is, the different types of land loans to choose from, and more info about Texas land loan rates.
What is a land loan?
A land loan is money borrowed from a bank or other financial institution to purchase a piece of land. Whether you plan to use the land to build a house, plant crops, or start another kind of agribusiness, you’ll likely need a land loan. (Unless you just have stacks of cash lying around.)
But there are layers to any land loan. Say you want to purchase a piece of land that’s priced at $50,000. The true, long-term cost of your land loan will not simply equal $50,000. What you pay in the long run will be impacted by your interest rate, loan term, payment frequency, and more.
Your interest rate will also depend on if you sign a fixed-rate or variable-rate loan.
In a fixed-rate situation, your interest rate stays the same for your whole loan period. The interest rate on a variable-rate loan will flex according to the market. (More on that later.)
What type of land loan is right for me?
Depending on your geography, goals, and budget, there are several different types of land loans to choose from:
- Ranch/Recreational Land Loans: This type of loan is helpful for people wanting to turn a tract of land into hunting grounds, a vacation spot, or a camper’s paradise.
- Rural Real Estate Loans: For those interested in purchasing raw acreage, future farmland, or a spot to build a future home.
- Ag Loans for Farm, Ranch, and Timber: Ready to launch an agribusiness? You’ll need an ag land loan if you hope to farm timber, start up a beef cattle ranch, or plant row crops.
- Land Improvement Capital: More of a secondary loan for those who already own land. A land improvement loan can help you find funds to dig a well, construct a barn, or build a bridge or fence, for example.
How to use the land loan calculator
So you’ve found your ideal tract and determined which type of land loan you need to pursue in order to purchase it.
The next step is figuring out the true overall picture of any hypothetical loan, so you know exactly how much you can afford. This information will be helpful to have in hand by the time you set a meeting with a loan officer.
Here’s how to use the land loan calculator:
- Plug in your ideal loan amount (how much does the land cost?)
- Choose an estimated interest rate (you can view the current rates on the Federal Reserve’s website)
- Input your down payment (you can enter either the dollar amount or percentage of purchase price)
- Pick what your payment frequency will be (will you make payments monthly, quarterly, semi-annually, or annually?)
- Insert your ideal loan term (how many years will you be paying off the loan?)
Once you plug in your numbers and click “Calculate,” you’ll see what your monthly payment would be, total interest amount, and total amount you would pay over the life of the loan. You’ll also see a full amortization schedule (make sure to save this for future reference).
Remember to play around with different numbers. The point of a land loan calculator is to see how the numbers shift when a variable (like interest rate or loan term or downpayment) changes – without having to do the math by hand. So plug in several different options and see how your payments vary.
Could you potentially afford a higher monthly payment if it meant saving some money in the long run? Is there a certain interest rate threshold you need to stay under? What kind of loan term is realistic according to your short- and long-term goals? A land loan calculator can help answer all these questions.
Important disclaimer: No land loan calculator can tell you with 100% certainty what your loan will look like in practice. The tool should only be used for estimation purposes. You’ll still need to fulfill any lender’s requirements and be approved for a land loan. Please also note that extra costs like taxes and insurance are not included in these calculations.
Many mortgage companies offer or require you to escrow taxes and insurance. As an ag lender, we do not require you to escrow for taxes and insurance. But just because it is not included in your monthly payments in the loan calculator, make sure you do some research to determine what those additional costs might be.
How do the current federal interest rates affect my land loan?
One of the biggest stories in the financial world post-2020 has been inflation – and what the U.S. Federal Reserve has done about it.
The answer has been many, many federal interest rate hikes. From March 2022 to March 2023, there were nine total – from 0.25% to 5%. That’s been quite the jump in a relatively short period of time.
So if you’re wondering if the federal interest rate affects land loans, you’re not alone.
First, some good news. If you have a fixed-rate loan, it doesn’t matter what the Fed does. Your interest rate will remain the same for the duration of your loan period.
However, it’s a different story if you have a variable-rate loan. Your interest rate will be subject to fluctuation – which could mean higher federal rates trickling down to your bill payment every month.
If you’re stuck in a variable-rate land loan that’s no longer serving you, you could refinance your loan. This might be the best option if your monthly loan payment has become a financial strain.
Determine how much your land loan in Texas will cost
Making the decision to buy land in Texas is exciting. Whether you plan to use the acres to launch an agribusiness or simply retire somewhere beautiful, that land is often the start of a new chapter.
But paying for that land? Not quite as exciting.
Getting a land loan that works for you, your budget, and your short- and long-term goals doesn’t have to be confusing or stressful.
Use this land loan calculator to figure out how much you would owe in interest and principal payments. And reach out to our team here for any other questions.