Debt Financing in an Era of Low Interest Rates
During the past week we have discussed the financing of farmland. For many new investors the challenge is to determine the course of financing. Debt financing or lender financing, is attractive today because of the low interest rates. Equity financing is the amount the investor or investors put towards the purchase. I am a big fan of debt financing in this era of low interest rates. Most lenders will require a down payment or equity towards the purchase. A lender’s Loan To Value (LTV) ratio is an assessment of the risk associated with the loan. Generally, assessments with high LTV ratios are higher risk and the loan costs the borrower more. Most lenders will require 25-40 percent down to finance a land loan today. This varies by lender and also by borrower, depending on your financial strength. If the borrower does not have enough for a down payment, the borrower can pledge other assets such as land, stocks, etc. Call or email me if you need more information or want to be referred to a lender.