Episode 39 Start to Close: Inside the Ag Credit Loan Process
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[00:00:01.280] - Caleb Sadler
Welcome to Beyond Agriculture, the podcast that takes you beyond the scope of ag and into the real life stories, conversations and events taking place in our community. Who we are and what we do is beyond Agriculture.
[00:00:27.780] - Weston Wolf
I'm Weston Wolf. I'm Kamryn Olds and we're here with Central Kentucky Ag Credit with the Stanford branch. Do you guys want to introduce yourselves?
[00:00:37.300] - John Peek
Sure. I'm John Peek. I'm a senior loan officer. I've been here like 23 years.
[00:00:42.580] - SaraVard Von Gruenigen
I'm SaraVard Von Gruenigen. I'm a senior loan officer as well. I've been here for 18 years.
[00:00:47.380] - Billy Cameron
And I'm Billy Cameron. I've been here only a year and a half, so definitely not a senior loan officer.
[00:00:52.380] - Weston Wolf
Here on the podcast episode today, we'll be talking about the. We really want to hit on the timeline of the loan, so the duration, how long it takes you from that initial application to closing. And it seems there's a lot of questions there when you guys are talking with new applicants that like, why can I fill out an application for equipment loan and get that in a couple days? And then when I'm getting a real estate loan, it takes a month at least. So that's kind of the topic that we're going to be talking about. I'll launch us off into some introduction, like questions. Who do. So who do I need to contact in order to start a loan process?
[00:01:37.900] - Billy Cameron
Well, I guess with that, if you're really wanting just to contact to get a loan, just call into the office. You know, there's always a loan officer here ready to talk to somebody. So just call into the office. We'll get you in touch with somebody, you know, with a. Or with a loan officer that can do the loan. And from there we can really get the process started quickly.
[00:02:00.020] - Weston Wolf
All right. And then do I need to fill out an application online or can I do it in person?
[00:02:05.380] - SaraVard Von Gruenigen
It depends. We can do both. Online applications can be a little complicated when you're involving your residents. There's compliance reasons why we need to do that in person rather than online. But any type of agriculture loan can be done online as well. But both can be done in person too. And we even do a lot of applications via email. Folks have the same work hours that we are open often. And so we have a lot of folks that we email applications to and then they send them back to us. And that's a good way we can get in touch as well.
[00:02:39.880] - Billy Cameron
Or what I do a lot, if it seems like it might be simple, I just help the person fill it out over the phone whenever they call in. So I'll pull up, I'll pull up an application myself. Like say both spouses are there. Oh, go. Okay, well, if you're here and you're ready and you have five minutes, I'll fill it out over the phone for you. That way we're not having to send it to them and they're not having to mess with it any and, you know, worry about getting it in.
[00:03:04.360] - Weston Wolf
All right, and then what do I need to bring to the table to start the loan process?
[00:03:10.150] - John Peek
So with us, it depends on loan size. Our loans are under 100,000. We utilize a credit scoring type system. And over 100,000, we normally analyze a loan. So if it's over 100,000, let's just say on a real estate deal we're going to ask you for a balance sheet and your three years tax returns. We may want pay stubs. We need to verify assets sometimes. So we may be looking for bank statements. It just depends really on the loan. It's case by case basis. And we'll just kind of see what you're looking for and see what we need together.
[00:03:48.870] - Kamryn Olds
Okay, so next I want to talk a little bit about land loans, about the process from getting a land loan from start to closing. Will the lender require an appraisal or survey of the land?
[00:04:04.680] - SaraVard Von Gruenigen
It's nuanced yet again. Sometimes we do need an appraisal done. Sometimes we can do what we call a collateral valuation where we can lean on the PVA value with some other determinant factors and do that, which is a little quicker. Process. Survey is interesting. We've got. That's a topic that we could get really detailed on. We start with looking at the current description of the property and seeing what it looks like. Does it already have a plat on file at the courthouse? Does it have platable calls? Sometimes we run into them where the calls don't plat well, and it doesn't look like it's supposed to look. And we can't verify acreage. Sometimes it just says to Billy Bob Jones corner to Farmer Brown's corner.
[00:04:52.580] - Billy Cameron
That tree stump over there, there's some.
[00:04:55.580] - SaraVard Von Gruenigen
Very interesting descriptions you can see sometimes. And in that case, most often we need a survey. But we do do a lot of work to try to verify acreage without seeking a survey. So if we get to the survey point, we have really done our due diligence within our authority and power and knowledge to try to figure out that acreage. But we always want to verify acreage for borrowers, because we want to make sure you're buying what you think you're getting. We can all tell stories where folks thought they were buying. For example, I had some folks thought they were buying 200 acres and I couldn't verify the acreage we had surveyed. Turned out they were getting 120. So it makes a big difference. We want to make sure that our borrowers are protected and getting what they think they're getting.
[00:05:37.380] - Kamryn Olds
What kind of documents will borrowers need to be able to sign throughout the loan process for a land loan?
[00:05:44.660] - John Peek
Well, the first thing is the application. You know, we want to get a signed application so we can pull credit and do our investigation on someone's financial status. Then through the loan process, there's normally not much to be signed until we get to closing. And then there are several forms that we utilize. But the main things in a real estate loan are you going to have your note to the association that describes our loan? It describes your payments, it describes how much money you're going to owe us at the end of the day. And then we have the mortgage which is filed. The courthouse some people call a loan a mortgage, and those are actually different terms. And they use mortgage to describe a loan a lot of times in the home lending process. But the mortgage is actually the instrument that's filed at the courthouse that describes our lien on the real estate to secure our note. So the note and the mortgage are the big things.
[00:06:44.720] - Kamryn Olds
Will they need collateral to put towards a land loan.
[00:06:49.750] - SaraVard Von Gruenigen
It varies. We have different policies that we can go by. You know, if you're talking about a chattel loan, chattel being cattle, equipment, vehicles, things of that nature, we usually match the collateral with the loan purpose. So if we're doing a five year lesser term, most of the time we'll reach out and seek chattel type collateral being cattle, equipment, vehicles. Again, if it's a longer term, then we need real estate. And that's because you know your vehicle is not going to be good and hold its value the same for 15 years like a piece of land will. So it's very nuanced. It depends on the type of loan, the structure of the loan, the purpose of the loan and the term.
[00:07:34.070] - John Peek
By regulation, if we make a loan over 10 years, we have to have first mortgage real estate collateral. So that's non negotiable.
[00:07:42.080] - Kamryn Olds
How many terms are your typical land loans?
[00:07:45.600] - Billy Cameron
You mean like the length of terms? So if you're buying like land just for agricultural purposes, we can go up to 24 and a half years. That's the longest on that. Now, if you're doing. If you're buying property for consumer basis, like a few acres, you know, like a few acres with a home on it and stuff like that, then we can go up to 30 years and then anywhere lower than that technically. But those are the longest terms we can go out for those.
[00:08:16.150] - Weston Wolf
All right, so from start to finish on a landload, what do you guys think that timeline would be like? What would you say would take you guys to get from that application to closing?
[00:08:27.270] - John Peek
Like just a rough estimate. Yeah. The norm kind of for the industry is 30 days. A lot of contracts describe 30 days. Sometimes we can get it done in two weeks, and sometimes it takes a little longer. Just to be honest. A lot of the things that we are actually waiting on during our loan process, we have to do a lot of verification. But then we also run title search, or we have an attorney run a title search for us, and, you know, we're waiting on them to complete that and get it back to us to make sure that we're going to have a first mortgage on that real estate. And then also if we have to have an appraisal done, then we actually most often farm that out. And we're working with an independent appraiser and we're working on their timeline. So it depends on how busy they are. It could take two to three weeks sometimes to get the appraisal back. So our timeline really depends on the people that we're leaning on to help us through that loan process sometimes. So that's. Normally, though, we can get something close in 30 days.
[00:09:24.480] - Weston Wolf
Okay, all right, and then let's jump into home loans. When you're buying a home, is there a limit to what kind of home I can buy?
[00:09:36.080] - SaraVard Von Gruenigen
It depends on the customer that we're working with. We have regulations about who we can lend to. Since we are the institution that we are. We're an ag lender, for instance, if a person doesn't farm at all, we have limitations about where we. And they're just a rural resident or they don't have any farming income. We are limited that we can't lend to them within city limits. It's just one of those quirky rules that we have to abide by. However, if a farmer wants to buy a house within city limits, that's acceptable. So there's a lot of nuance there. Same way with manufactured homes, we can do those, but there's a separate policy for those as far as how the home has to be set up. And how the loan has to be structured. And there's also kind of different variations of like how long we can set the term up on a manufactured home based on the age of the home. So there's a lot of outlets for them, but there are certain rules that we have to abide by.
[00:10:44.470] - Weston Wolf
Right. And as we've sat with me and Kamryn, as we sat with other loan officers, we've noticed that there are different things that you have to do in comparison to a home loan as a land. So if you guys wanted to dive deeper into that, what are the different. What are the different processes that you have to go through as a borrower to get that home loan in comparison to a land loan?
[00:11:08.530] - SaraVard Von Gruenigen
So with home loans there, because it is regulated more heavily by the government, since it's persons of residence, it's the roof over your head. They want to make sure that folks are protected to the best of their ability. So there are a lot more steps when it comes to early disclosures and paperwork. That's the, I would say, the biggest difference. Immediately you're going to be getting what we call a loan estimate from us. It is a projection of what your cost will be. This can change throughout the process, like, say your loan amount changes or there's any type of variance, then that has to be redisclosed. So you may get another set of those. I've had loan, I've worked home loan I've worked on before. I think I ended up having a change of circumstances, what they call it, where I'd send out five different loan estimates throughout the process. And then there's timelines that have to be followed. And then when you come to closing, you have to give a preliminary closing disclosure and then a final closing disclosure. You're just getting a lot. You're almost kind of getting information overload as compared to a traditional.
[00:12:12.300] - SaraVard Von Gruenigen
Just like I'm going to buy a farm. But that's acceptable because it's what we need to do to protect our consumers when it comes to their homes.
[00:12:19.630] - Billy Cameron
And then building off that, you know, it is a lot more documentation to view. But it's not really any extra work for the customer. No, it's extra work, I guess you can say, for us as loan officers to prepare those documents for the customer. But really it's not any more work to do, you know, to get a home loan than it is to get like a farm loan. It's just more to view. And honestly, it might even be easier because the customer, they know all throughout the process what they're getting.
[00:12:51.040] - SaraVard Von Gruenigen
Yeah. I'd say if anything, the customers getting that documentation, they may have more questions because it looks intimidating when you get this four page form that's got all these numbers and all these details. And I always tell folks, call me, we will walk through it. Because if you have somebody that's familiar with the forms that can walk through it with you, it makes a lot of sense. But if you're not used to looking at this loan estimate, this five page thing every single day, then yeah, it's going to look like Greek to you. So whoever they're working with, whether it be us or somebody else, call and ask questions.
[00:13:26.890] - Weston Wolf
Right. And then on a couple of the home loan or landlord closings that me and Kamryn have sat in on, there has been a realtor present. Do home buyers or land buyers need a realtor there for that closing process or no?
[00:13:45.210] - John Peek
I think that just depends. We have private deals where it's person to person, where there are no realtors involved and they go, fine. Sometimes they have an attorney draw up a contract, sometimes they close without a contract. But realtors serve their purpose, I think, in marketing and buying and selling of homes. And they can be very helpful through the process. But it's not required that you have a realtor to buy a home or a piece of property.
[00:14:12.390] - Billy Cameron
Okay.
[00:14:13.350] - Weston Wolf
And what was the typical term for a home loan?
[00:14:19.430] - Billy Cameron
Typical term, yeah. So when you're doing a consumer loan such as a home loan, that would be 30 years.
[00:14:25.150] - Weston Wolf
That would be 30 years. Gotcha, gotcha.
[00:14:28.070] - SaraVard Von Gruenigen
And a nuance too, that can change if you are getting into the manufactured housing market.
[00:14:32.630] - Weston Wolf
Okay.
[00:14:34.630] - Kamryn Olds
So first we touched on buying a home. So now we want to go into what it takes to build a home. So, what are loan options available for building a home here at Ag Credit?
[00:14:45.700] - SaraVard Von Gruenigen
Okay, yeah. So consumer construction loans here we have a couple different options. The traditional method would be what probably most folks are used to. It's set up initially as kind of like a draw note on a variable rate. Variable meaning the rate can shift throughout the loan process. The customer draws the money out as they need it. And we have inspections along the way and requirements along the way that they have to be met. And then when it's completed, we get together and set it up on whatever term that they desire, of which we can go on a stick. Built home up to 30 years, like Billy referenced. We also have another product where we can fix the rate for you at the beginning of the process. So the funds are immediately all dispersed. We put them in an account that we can disperse the construction draws from the difference in that one is your payment, your interest is fixed and you're immediately making a fixed principal interest payment just like you would come went and bought a home. So I always tell people there's pluses and minuses to both of them. It just depends on what you desire in that process.
[00:15:56.860] - SaraVard Von Gruenigen
We also have our co worker, Jeremy Parker, and I can't speak of his products necessarily because I'm not in them every day, but he's also got some options in the construction process as well that we have as a loan originator.
[00:16:13.120] - Kamryn Olds
If borrowers were able to take out a loan for land, can they take out a construction loan to build a home on the property in the future?
[00:16:23.120] - Billy Cameron
Yes. So at that point, like if they have the land loan at that point, then we'll basically just combine the loans into one. So we'll basically refinance the land loan into that construction loan or whatever and just make it one loan for them so they're not having to pay on two different loans.
[00:16:41.380] - SaraVard Von Gruenigen
And we've had some quirky scenarios in this rising interest rate market where I had, you know, I've had folks that had bought a property win rate for four and a half percent and so they've got their, you know, 15 acre farm on, you know, a four, four and a half percent interest rate and then all of a sudden this home loan is higher than that. They may or may not choose to consolidate. They had that option too if they don't want to. It really depends on the person, what they want and their cash flow situation.
[00:17:09.370] - John Peek
I think the first thing we look at on a refinance is is it the best thing for the customer. SaraVard just mentioned the rate environment we are in now as compared to the last probably 20 years, we've been in a little bit lower rate environment. So, we really want to make sure that it makes sense for the person. Sometimes, you know, most often if you're talking about a home loan, they're looking to improve their rate. Right now, that's, that's harder to do. Sometimes in refinance though, they are looking to free up some cash flow. So, they may be looking at taking some equity out of their home, doing a project or from their farm for that matter. If they're looking to make farm improvements, they may want to borrow back against that real estate to build fence, build a barn, things like that. We just want to make sure it makes sense for the person and that they're in a better situation or that they're accomplishing their goal through the refinance.
[00:18:05.740] - Weston Wolf
And then when you're going through that refinancing process, what would somebody like, is there a closing process for the refinance? You have to go back through and sign the.
[00:18:14.060] - SaraVard Von Gruenigen
Yeah. So, it varies. I will cover. I'll talk about consumer. Like if you're buying a home, okay. So, if you're. If you're doing home refinance again, you're going to see a lot of paperwork. The lender will need to kind of get a payoff estimate about what your current payoff would be for your home and work off of that, knowing that it can change based on whether you make payments along the way or interest accrues along the way. One significant difference on a home, when you do a home refinance is what we call right to cancel or right to rescind. Once again, this is a government regulation. It is, again, to protect the consumer. So, when you close, you essentially have a dry closing, and then you have to wait a timeline. It's three days, but it often ends up being more like five because you can't count the first, you can't count the last. And mailing days go into place but anyways. That's something that's unusual. And people have a hard time understanding that because we've closed this loan. But then when you close the loan, nothing can happen. Nothing can be filed, no checks can be sent or processed.
[00:19:21.050] - SaraVard Von Gruenigen
The loan can't be processed. Everything sits still until that right to rescind happens. And in that time frame, the customer has the option that if they decided that they wanted to back out in that time frame, they could cancel everything. You know, that would be the end of it. And then at the end of that time frame, if they decide not to cancel, then everything gets processed and moved. But I think that's probably the most confusing thing for folks whenever we're refinancing a home. And again, it's just to protect the customer, to make sure they really want to do this with this residence they currently live under. Billy, you want to talk about, like a farm refinance?
[00:19:56.160] - Billy Cameron
Yeah, just like one I'm doing right now. A customer is doing a refinance from another lender. So, it's a lot of the same process as you have, like, say if you're purchasing the farm, because we're going to redo title work, we'll do another appraisal and stuff like that. And at the very end, we'll get a payoff from that lender based off of when we anticipate to close the loan. Just make sure we have the correct loan amount that we are going to refinance and take on and then we'll have the closing.
[00:20:24.860] - Weston Wolf
All right, well, I think that's all we've got for you guys. Yeah, our initial goal for this podcast episode was just to, like, make sure everybody who's listening knows that this is why these processes are taking so much longer than your, like, typical equipment loan. And. But yeah, we thank you guys for taking out the time out of your day to answer some of these questions. I think it'll be beneficial for people to hear and know the process a little bit more. And of course, they can just ask you guys when they're taking out a loan too. But yeah, it's just good for them to know a general background to start off with. So yeah. Thank you, guys.
[00:21:01.620] - SaraVard Von Gruenigen
Thanks for having us.
[00:21:02.580] - Billy Cameron
Thank you much.
[00:21:06.900]
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