Purchasing a plot of land is the first step towards building your dream house. In today’s market, where the price of land has skyrocketed, there are many finance options available to help you with the purchase of land.
Land purchase loans are used to buy vacant lands i.e., without a home built on the land. It is a secured loan, as you have to put the purchased land as collateral with the bank.
Below are a few points that might help you to select the perfect loan.
Where and how to acquire a loan for land purchase?
The leading places to get land loans are regional or national banks and credit unions. You need to fill out a loan application form and provide personal details regarding your employment, income, debt, and assets. The scrutiny is done to ensure that the borrower is capable of returning the lenders amount. The lenders will prefer a strong credit history and a lower debt-to-income ratio.
The unrealized future value of the land can vary, so the lenders also seek detailed information on the property and the plans for the area after purchase. Once the loan application is submitted along with the relevant documents, your loan goes through underwriting. This is when the lender decides to approve or deny your application.
How to find the best loan for land purchase?
Finding the right land loan requires the right mechanism for the work to get done. You need to research and examine multiple land loan offers and pay sincere attention to the loan fees and its interest rate so that it will be easier to compare all the offers effectively.
Other lending options:
- Permanent construction loans: These loans give money to the borrower upfront if the land being bought is for the construction of a house. During the time of construction, interest is payable according to the price of the plot. After the construction of the home, the loan is converted into a permanent mortgage.
- Equity home loans: A home equity loan to finance the land is also another way of purchasing land. The difference between the value of your home and the remaining mortgage must be over 20%. These types of loans are at a lower interest than land loans because of their increased selling value. If the borrower defaults payments, the property could be at risk of being sold.
- Financial support from seller: The landowner may offer finance to support and encourage the buyers. The seller will set the term period of the loan and will also require additional qualifications to finance the land successfully. Review the deal and the loan with a qualified real estate lawyer.
- Unsecured loans: You may use a personal loan to buy the land. These loans have higher interest rates and short repayment periods. This type of loan will only work if the land you want to buy is less expensive.
A land loan is an agreement between two parties. The terms of the loan, such as downpayment, are contingent on the effective use of land. In many cases, people buy raw lands with no recent plans of constructing anything, which makes it a speculative investment. A potential customer needs to present an effective loan proposal and prove creditworthiness in order to avail of a land loan.