If buying land rather than an existing house is more suitable to your needs or goals, then you will probably need a land loan. A land loan is typically more difficult than getting a normal mortgage because there is no home to act as collateral for the loan.If buying land rather than an existing house is more suitable to your needs or goals, then you will probably need a land loan. A land loan is typically more difficult than getting a normal mortgage because there is no home to act as collateral for the loan.
Compared to a home loan, financing land creates a unique set of difficulties for a potential borrower. Before buying land, a borrower should consider a couple things. A thing to keep in mind is that your lender will require the borrower to have their boundaries surveyed.
The borrower will also need to check the land-use restrictions and check zoning laws. Borrowing cost on a land loan depends on many factors, such as if the lot is build-ready or not. The best loan sources include seller financing, local lenders, or a home equity loan. Rural land may qualify for a USDA subsidized loan as well.
First off, it is important to be clear about what your purchase might entail. This is why it is very important to have surveyors mark your boundaries and have everything ready to present to your lender. Another factor that needs to be considered is checking the land-use restrictions and double-check the zoning. For residential lots, a factor to consider is having access to utilities. Having access to water, electricity, cable, and sewers will save borrowers a lot of time, money and hassle. Similarly, another key issue is having access to public roads, since the buyer will need a permanent easement to access a public road if one is not already available. We also suggest that you check with your local planning department to see what the future holds for the neighborhood. A new park in the neighborhood could increase the value of the property, while the construction of a new highway or sewage plant could lower the value.
The terms of the loan are heavily influenced by what the borrower intends to do with the land. This is because the use of the land is directly linked to the risk that the lender will take on. Getting a land loan is often more difficult for this reason. When a borrower gets a home that is already been built, the bank has direct collateral, whereas, a land loan does not. There are many parts during construction that can go wrong.
There are multiple ways that people who want to get a land loan can obtain financing.
Local banks and credit unions, a USDA loan, a Home Equity Loan on their current home, and seller financing are all ways that a borrower can get the financing for the land they wish to purchase. Seller financing is a good option for borrowers to get favorable terms when purchasing land. Being an agreement between two private citizens, the negotiation process is a good way for the borrower and seller to agree to an interest rate and down payment that work for both parties. To make sure the borrower is getting a deal with no loopholes, the borrower should consult an attorney to review all necessary documents of the deal.
Local banks and credit unions are a good place for borrowers to look if they do not like the terms given to them by bigger institutions. Local banks and credit unions will have better knowledge about the local land and areas, and can therefore give you a better assessment of the risk your loan poses. These smaller institutions will still require the same paperwork and plans for the land that a bigger institution would.
Another option for borrowers wanting to purchase land would be a USDA (United States Department of Agriculture) loan. This type of loan is guaranteed by the USDA and originated by private lenders similar to and FHA or VA loan. A USDA loan is for people looking to purchase rural land and housing. The loans are offered by the USDA with minimal requirements and advantageous terms, making them a very good option for people who want to buy rural land.