Secure a home loan and avoid these five pitfalls

Mortgage qualifications vary by lender and loan type. But all homebuyers can improve their odds of securing loan approval by avoiding actions and decisions that may call their financial management into question. We have developed the following list to help you maintain or improve your credit worthiness.

Top 5 Mortgage MistakesOverextended borrowing capacity: Calculating affordability requires homebuyers to be realistic about their borrowing capacity. Stretching borrowing limits can quickly create financial stress. As a general rule of thumb, plan to purchase a property that’s worth no more than three times your total gross annual income, and if estimating a monthly mortgage payment, remember to factor taxes and insurance.

Because debt-to-income ratios demonstrate a homebuyer’s ability to handle monthly payments and repay debt, avoid taking on new debt while your application is under review and put off major purchases until after loan closing.

Poor financial profile: When applying for a home loan, homebuyers should expect to share their full financial profile, including their debt and credit history.

Failing to report debt challenges the accuracy of the financial documentation homebuyers submit in their loan application and may cast doubt on the applicant’s character. Always disclose debt up front and respond quickly if asked to provide additional financial information.

Similarly, lenders use credit scores to assess risk and make objective predictions about future financial behavior, but homebuyers don’t necessarily need a traditional credit profile to prove their loan eligibility. Depending on the lender and loan program, you may be able to boost your credibility as a borrower by reporting other on-time payments such as rent or utility bills.

Change in employment: Employment history establishes whether a homebuyer has a predictable source of income to support their mortgage payments. If a new career opportunity is on the horizon, be prepared to verify any change in employment income to avoid loan processing delays.

For those who farm or are self-employed, verifying income may require additional steps. In order for a second job to count towards overall income, the job must have been held for at least two years.

In general, lenders will want to review your past two years’ personal and business tax returns, your most recent paystub and an updated balance sheet.

Lack of funds for down payment: Homebuyers who dismiss their down payment run the risk of not having cash available when they’re ready to buy. Setting aside down payment funds early in the home loan application process will bring peace of mind to both you and your lender.

Underestimating the costs of buying and furnishing a home can also leave homebuyers feeling strapped for cash. In the months prior to house hunting, it’s good practice to cut unnecessary spending and save three to six months of living expenses as an emergency cash reserve.

Missing debt payments: Finally, missing a payment during the loan application process may interfere with mortgage approval. By keeping careful records and paying debts early you can rest assured your accounts are properly credited and your mortgage application is current.

Homebuyers who have a history of missing debt payments are also likely to raise credit concerns. While recovering from negative credit takes time, it’s important to monitor your spending and immediately begin resolving any patterns of financial mismanagement.

Click for more information about rural home and acreage mortgages.

house with ckecklist

How Much House Can You Really Afford?

From house hunting to financing, first-time homebuyers often have many questions about navigating the road to homeownership. It’s an undertaking that can seem even more overwhelming when moving to a farm, acreage or rural community.

Consumer lending officers with Frontier Farm Credit shares five tips on how to successfully finance a country home that fits both your lifestyle and budget.

Start the conversation early. Before falling in love with a property, our officers advise homebuyers to evaluate their financial situation and explore their mortgage options.

The first mistake homebuyers often make is not meeting with a lender prior to going out and shopping for their home, they said. Involving a lender early in the homebuying process allows them to determine what property price range their income qualifies them for.

Gather up-to-date financial records. To complete a loan application, Frontier Farm Credit requires the past two years’ tax returns, a most recent pay stub and an updated balance sheet. Our officers said it’s important for homebuyers to account for all assets and liabilities when preparing their balance sheet.

Listing liabilities is the easy part, but many applicants tend to overlook their assets, such as a car or checking account. Understanding the basics of how to fill out a loan application can reveal how debt-to-income ratios impact a homebuyer’s ability to borrow.

Avoid overextending finances. Our officers caution homebuyers against borrowing the maximum amount possible.

We don’t want to set up our borrowers to fail. We want to set them up to buy their dream home and still be successful — making their loan payments and having the flexibility to take on an unexpected car payment, for example, or being able to go out for pizza on Friday night.

As a general rule, we recommend the 28/36 standard, meaning a household should spend a maximum of 28 percent of its gross monthly income on total housing expenses and no more than 36 percent on total debt.

Consider the size of the property. Some lenders are hesitant to offer financing for farms and acreages they define as nonconforming properties. Frontier Farm Credit, however, can finance any sized lot.

Large properties over 40 acres sometimes require a higher down payment and shorter loan term. We treat a property under that threshold as a traditional home loan product. There is a lot of flexibility under the Frontier Farm Credit umbrella.

Seek out the right lender. Lenders stand out from the competition by the areas they specialize in. For example, do you need a lender that is attuned to the needs of self-employed borrowers?

We understand the unique financial situations of the self-employed market, including farmers, and have the expertise to use trends and averages to get approvals.

Click here for more information about rural home and acreage mortgages.

House in field for future residential building plot

Financing options for buying now and building later.

The perfect home in the country often begins with finding the perfect property. With a home site loan, you can buy your land now, and build your dream home later.

Home site loans offer many advantages. But some of them require finding the right lender for your project.

Use Land Equity for Construction: Buying a farm, lot or acreage when the location is available can protect you from rising land values. It also is an opportunity to leverage any land equity for future home construction, possibly reducing your money down.

No Acreage Limits: While many lenders offer lot loan programs, some shy away from financing home sites that don’t fit within certain thresholds, referred to as “nonconforming” properties. Talk to lenders about their ability to finance any sized lot and their familiarity with rural features, such as outbuildings, crops or septic systems that often other lenders aren’t.

Straightforward Application: Home site loan applications generally require the same financial information as other loan packages, including the past two years’ tax returns, most recent pay stubs and an updated balance sheet. No construction plans or contracts are needed until applicants are ready to secure financing for new home construction.

Flexible Construction Periods: While many home site borrowers are ready to build within five years, it’s important to have flexibility, in case of delayed dreams. Make sure you understand your lender’s expectations and ability to accommodate your schedule. This is particularly important for agricultural producers, whose property purchase also might be tied to their agricultural production and income.

When it comes to buying land and building a new home, working with the right lender is as important as finding the right property. Click for more information about rural home construction and lot loans.

Dreaming of a Country Home? What You Need to Know Before Buying or Building.

Many of us dream about living the country life, but what first-time rural property buyers often overlook are the environmental and regulatory factors that can present unique challenges when considering a home or land purchase.

Evaluating a farm or acreage doesn’t have to be a daunting task. Below is a checklist to help you avoid potential rural property pitfalls.

1. Water Sources
water source

Groundwater wells are the primary source for domestic water in rural areas. For properties that already have a well, consider water quality as well as quantity to determine if the water source can sustain the number of occupants living on the site or support future expansion.

2. Drainage

    Because drainage depends on soil type, topography and annual precipitation, it is likely a drainage problem will not be limited to a single property. Rural dwellers must work with their neighbors to ensure all water enters and leaves their land without disturbing or damaging nearby properties.

3. Soil Quality
soil quality

    Soil quality not only effects drainage, it also impacts compatibility for constructing homes, outbuildings and septic systems. Experts from the local county extension office or conservation district office are two of the best resources for identifying soil types and ratings of a particular land parcel.

4. Zoning Laws
zoning laws

    Zoning laws dictate what rural land uses and activities are permitted or prohibited. Prospective buyers can obtain a copy of the applicable zoning map through the local government offices to determine if the property suits their intended needs.

5. Easements

    To avoid surprise encounters with the neighbors or a utility company, interested buyers should be aware of all easements that cross their property lines.

6. Access

    If the land is only accessible via private property, buyers should confirm there is a permanent easement with a use and maintenance agreement in effect with the neighboring property owners.

7. Survey

    When in doubt, a professional land survey can help protect a rural investment by defining the legal boundaries of the property and any features it includes such as buildings or fences. It is also a useful tool for verifying plot size, validating price and noting regulatory setbacks.

8. Outbuildings

    A thorough inspection of any existing outbuildings on the property such as sheds, barns or detached garages should be carried out prior to purchase. Roofs, siding and foundation materials should be assessed for wear and soundness.

9. Electricity, Natural Gas, Propane, Phone

    Running energy and services to undeveloped land can be costly and time consuming. Buyers can avoid unexpected development costs by factoring rural utilities into their total investment.


To learn more about country home financing, contact one of our local offices at 800.397.3191.

Picture of inside of house

Ready-built Homes Provide a Quality Alternative to Traditional Home Construction

Picture of house on a trailerAs Michael Larson followed the construction of new homes in Gettysburg, he couldn’t help but note the months – many marked by inclement South Dakota conditions – that passed while families waited to move in.

While many of the finished homes were beautiful and well-built additions to the community, Larson wanted a different and faster construction process for his family. Michael and his wife, Sarah, chose what their builder calls ready built – a stick-built home that is constructed and finished off-site and delivered as a single unit. It is one of many off-site building options comprising the fastest growing segment of home construction in the United States.

In some areas of Frontier Farm Credit and FCSAmerica, as many as half of our mortgage customers choose off-site construction for their home in the country or rural community. Driving this trend are people like the Larsons who see pre-built homes, whether delivered whole or in modules, as a good investment that saves time and, in some cases, money.

Avoiding the Elements

“One of the drawing points for us was that our house could be built in 10 to 12 weeks in Watertown,” Larson said of the couple’s builder, Steinmetz RediBuilt Homes in northeast South Dakota. “I knew from other projects in the area that it can take up to one year for a house to be built on site.”

The Larsons were so certain of their construction choice they didn’t seek an estimate for a comparable home built on-site. But Larson said his family did save on financing because they had no interest payments during the short period between selecting and moving into their new house.

The Larsons found their dream home while walking through a model. The couple preferred a different kitchen counter, otherwise, the layout and finishes were everything they wanted, down to the wall colors.

With their house already complete, they hired a basement contractor recommended by Steinmetz. Digging began in April 2017 and the house was set in place the first week in May. Contractors arrived to make the necessary connections to the electrical and plumbing systems pre-installed in the house, and the Larsons moved in two weeks later.

“There were no surprises,” Larson said. “We knew exactly what the house was going to look like. It arrived in one piece and only had a couple little cracks in the drywall, which they repaired.”

Looks Like Custom-Built

Builders generally offer several layout choices in their modular and ready-built home lines and then allow buyers to customize with finishes. The result can be a home that looks and feels like custom-built construction – but with the advantage of fixed costs, said Jordan Anderson, a consumer lending officer in Frontier Farm Credit’s Parsons office.

Modular and other off-site homebuilders have mastered the cost piece and the material quality, Anderson said. They have all the custom pieces you would expect of quality stick-built construction.

In areas where the nearest building contractor is 60 or more miles away, pre-built might be the only affordable option for achieving the home of your dreams, Anderson said.

Buyers of pre-built homes also appreciate that once they have selected the layout and finishes, the off-site builders take over the process. Some homeowners like the involvement and oversight that comes with a traditional construction site, Anderson said. But for people who don’t have the time, and that includes many producers, it’s nice not having to check on progress and make decisions throughout the construction process.

As a lender, Anderson said, Frontier Farm Credit works to help home buyers identify the construction process that meets their needs and gives them the home they want.