Everything you need to know about land financing.
Understanding the ways that land use restrictions, easements, and zoning requirements can significantly impact your farmland purchase is crucial to making an informed decision and ensuring that the property you’re considering meets your needs and goals.
The new guide Ag Land Loans 301 from FBN® Finance walks you through these restrictions and requirements as well as explains when a new survey is required and what type of appraisal is necessary for a land loan. Download the free guide here.
Below we unpack who determines these restrictions and requirements, potential challenges, and five steps to take for due diligence.
Land use restrictions are put in place to regulate how land can be used and to ensure that land development aligns with broader community, environmental, and economic goals. They are determined by various entities, including local, state, and federal government agencies, as well as tribal governments and private parties. Consider the impact of the following on your goals when purchasing land.
Land use restrictions, which can limit the types of activities you can conduct on the property, can include certain agricultural practices or commercial activities.
Restrictions can include building structures, subdividing the property, or making other improvements.
Some restrictions are in place to protect environmental features such as wetlands, wildlife habitats, or water resources.
Conservation easements are legal agreements that restrict land use to protect its conservation values. These can limit development and certain agricultural practices but may offer tax benefits.
Easements are legal agreements that grant specific rights to a third-party to use a portion of the land for a particular purpose, while the landowner retains ownership. They are determined by various entities, including private landowners, land trusts, government agencies, utility companies, and sometimes through court orders.
Agricultural easements protect farmland from development and ensure it remains available for agricultural use. However, there are also conservation easements that may protect land for agricultural use, drainage easements that allow for the construction and maintenance of drainage systems to manage water flow and prevent flooding, and utility easements that allow utility companies to install and maintain infrastructure, such as power lines, water pipes, and communication cables.
It’s important to weigh the advantages and disadvantages of different types of easements, which are unique to each scenario, when considering a property purchase. Farmers may receive direct payments for granting easements on their land, which can provide a significant source of income. There can also be reductions in property taxes, income tax deductions, and estate tax benefits. However, easements can result in restrictions, responsibilities, less privacy, and additional costs.
Easements can grant others the right to access or use a portion of your property. Common examples include utility easements, road easements, and rights-of-way. These can affect how you use the land.
Some easements may require you to maintain certain areas or infrastructure, such as shared access roads or drainage systems.
Easements can impact the value of the property. For example, a utility easement running through farmland reduces its agricultural value.
Easements are legally binding and can be difficult to modify or terminate. It’s important to understand the terms and conditions before purchasing the property.
Zoning requirements on farmland can be determined by local government (city or county), planning commissions, zoning boards or boards of adjustments, state government, federal government, and public input. Community members, including farmers, can participate in the zoning process by attending public hearings, providing feedback, and working with local officials to advocate for zoning policies that support agricultural interests.
Zoning laws dictate what types of activities and developments are allowed on the property. This can include residential, commercial, industrial, or agricultural uses.
Zoning requirements often include regulations on building size, height, setbacks, and density. These can affect your plans for constructing new buildings or expanding existing ones.
If you plan to subdivide the property, zoning laws will dictate the minimum lot sizes, road access requirements, and other subdivision regulations.
Changing the zoning designation of a property can be a complex and time-consuming process, often requiring approval from local government authorities.
Ensuring compliance with zoning laws and obtaining necessary permits can add to the cost and timeline of a new land purchase.
Before purchasing farmland, conduct thorough due diligence to understand any land use restrictions, easements, and zoning requirements. Make sure to:
Review title documents
Consult local zoning authorities
Hire a surveyor
Get legal advice
Conduct environmental assessments
By understanding these factors and conducting thorough due diligence, you can make a more informed decision and avoid potential issues down the road.
As you assess farmland, you’ll want to be able to act quickly to secure your ideal farmland property. Gain a competitive advantage with a land loan pre-qualification from FBN Finance.
Applying for pre-qualification helps you make a fast, well-informed financial decision when buying land. Be confident you have the financing you need to make a purchase offer — and know exactly how much you can spend — by getting pre-qualified for a farmland loan ahead of time. The offer remains valid for 180 days.
Land loan pre-qualification from FBN Finance:
Does not impact your credit score
Can be as high as $5 million
Clarifies whether you're currently financially positioned to make a land purchase
Download Guide | Learn More | Get Pre-Qualified
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