What does a lender check first?
Most start with repayment ability: can the operation, including the land being purchased, earn enough to cover the loan payment, living costs and other debts in a normal year, and still survive a weak one? Everything else supports that question.
Extension publications on loan underwriting describe this as capacity, one of the factors lenders commonly weigh alongside character, capital, collateral and conditions.
Think of the review as a story the numbers tell. Lenders want a story that is consistent from tax returns to balance sheet to projections, and inconsistencies raise questions.
How do the five Cs apply to land?
Character reflects your credit history and management reputation. Capacity is repayment ability. Capital is your own net worth and down payment. Collateral is the land and any other assets pledged. Conditions include the purpose, the loan terms and the wider economy.
Strength in one area can offset weakness in another, but a lender will rarely overlook a clear problem with repayment capacity.
Different lenders weigh the factors differently. A cooperative lender may emphasize management and repayment history, while a bank may focus more on collateral coverage. Ask each how they decide.
How does the appraisal work?
An independent appraiser estimates what the land is worth, looking at comparable sales, soil quality, access, improvements and productivity. The lender then offers a loan based on a percentage of that value.
If the appraisal comes in below the price, you can renegotiate, add more down payment or walk away. Ask the lender how the appraisal is ordered and whether you receive a copy.
Productivity matters. An appraiser may consider soil ratings, drainage, irrigation, buildings and nearby sales. Bring soil maps and past yield records to help show the land's strength.
What documents should I have ready?
A complete package speeds the decision.
Also include a list of every debt, even small ones. A complete list shows honesty, and lenders will find the rest through credit checks.
Ask the lender for a checklist and a timeline. Delays usually come from missing documents, so a list with dates keeps both sides on track.
- Several years of tax returns and financial statements.
- A current balance sheet with asset values and debts.
- A cash flow projection that includes the new loan payment.
- Production records for the land and your operation.
- Purchase contract, leases, soil information and the legal description.
How do lenders handle risk?
Lenders test your plan against lower prices or yields. They may require a larger down payment, a shorter term, crop insurance, additional collateral or a guarantee from another party. These requirements are risk controls, and they may be adjustable if you present a strong plan.
FSA guarantees can reduce a private lender's risk and may help a borrower who falls just short of the lender's standard. Your lender or local FSA office can explain what is possible.
Ask the lender what covenants might apply, such as limits on additional debt, minimum working capital or reporting requirements. These affect your flexibility for years.
How can I strengthen my request?
Show a clear reason for buying: how the land adds income, lowers rent or improves efficiency. Include a conservative budget. Show reserves or other income that can carry the loan in a bad year. Bring a record of paying debts on time.
If your numbers are tight, ask the lender what changes would help, such as a larger down payment, less machinery debt or a lease with a purchase option.
Keep your records current throughout the year, not just before a loan request. A bookkeeping system that produces clean statements is one of the best investments a borrower can make.
What mistakes should I avoid?
Presenting an optimistic cash flow, hiding other debts, or ignoring family living costs will undermine your credibility. Lenders usually find the problem during review, and trust is hard to rebuild. Another mistake is neglecting legal review of title, easements and water rights.
This article gives no rates, which change frequently. Ask each lender for current terms in writing.
Consider asking the lender for a candid review before you submit anything formal. A pre-application meeting can reveal weaknesses while there is still time to address them.
Key takeaways
- Lenders start with repayment ability and test it against a poor year.
- The five Cs frame the review: character, capacity, capital, collateral, conditions.
- An appraisal sets the lending value, not the purchase price.
- A complete document package speeds approval.
- A conservative, honest cash flow builds trust.
Sources and official links
Last reviewed: November 12, 2026. Written by the Farm Money & Grants Editorial Team. Educational only, not tax, legal or financial advice. See our editorial policy.