Acquiring a land loan is more difficult than obtaining a mortgage.
If you buy land instead of an existing home to start from scratch, you’ll need a land loan. And that creates more issues than simply obtaining a conventional mortgage. For one thing, there is no home to serve as collateral for the land loan, and you can’t (typically) acquire land without putting down any money. (Industrial Land For Sale)
Obtaining land financing presents a unique set of challenges for prospective buyers. Here are three things to think about when purchasing property.
TAKEAWAYS IMPORTANT
- Obtaining a land loan has a unique set of obstacles when compared to obtaining a home loan.
- Because lenders demand surveyed borders, you’ll need to look into the property’s zoning and land-use restrictions, as well as access to utilities and public roadways.
- When compared to a non-buildable property, a buildable lot will lower your borrowing costs.
- Seller finance, local lenders, or a home equity loan are the best loan options.
- A USDA subsidised loan may be available for rural land.
1. Basic Land Concepts: Boundaries, Zoning, and Access
Boundaries
To begin, it is critical to understand what the potential acquisition implies. This is why having surveyors draw the borders and having everything on paper ready to deliver to the lender is critical. Double-checking zoning and land-use regulations is another crucial aspect.
Zoning
It’s also a good idea to check with the local planning authority to see what the future holds for the area. A new park down the street has the potential to increase property prices in the coming years, whereas a new highway or sewage treatment facility is less likely to do so.
Access
Access to utilities is a critical consideration for residential sites. Water, sewer, electricity, and cable hook-ups are all ready to go, which saves time, money, and aggravation. Similarly, if a permanent easement to access a public road is not already available, the buyer will have to get one.
Because purchasing land differs from purchasing a home, working with a real estate agent that specialises in this type of transaction or construction loans is a good choice.
2. Land Use Planning: Build Now, Make Improvements Later, Invest Speculatively
Build Right Away
The loan terms, such as down payment and interest rate, are usually determined by the land’s intended use, which is directly tied to the bank’s risk exposure. In this approach, obtaining a land loan is always more difficult than purchasing an existing home, because the latter provides the bank with instant, tangible security. New construction, on the other hand, contains more moving pieces that can go wrong.
Improvements are required.
Buying a build-ready land with the aim of immediately starting construction of a primary dwelling is the next step down the bank’s confidence ladder from existing homes. Depending on the sale price, a down payment of 15 percent to 25 percent is usually requested. Things could go wrong, cause delays, or boost costs along the road, but the bank believes the schedule is still reasonable.
Investing on the Brink
Finally, there is undeveloped land with no plans to develop it, which is essentially a speculative investment. A project in this manner, for example, could entail purchasing land in preparation of the development of a new motorway nearby. When the motorway is finished, the expectation is that the site will be appealing to developers looking to establish a new community with a quick commute into the city. The land might subsequently be sold for a profit to the developer. A down payment of up to 50% may be required for these loans.
Unimproved lots are those that lack the bare minimum of services. Unexpected difficulties and cost overruns are typical, and they can add months to the acquisition timeframe.
3. Land Loan Alternatives: Obtaining Funding
Given the aforementioned issues, you may need to look for other ways to finance your land acquisition on acceptable terms, and there are a few options.
Financing from the seller
This is a wonderful way to get good terms, especially if the seller is desperate to sell the land and the market is slow. Everything, from the down payment to the interest rate, is negotiable because this is an agreement between two private persons. Before signing anything, have the papers reviewed by an attorney to avoid any loopholes or unpleasant surprises for either party.
Banks and credit unions in the area
Local banks and credit unions are more likely to approve land loans than the big banks. Due to their local understanding of the property, they may also be able to provide better terms. To prove creditworthiness, a potential borrower will need to offer a loan package that includes land specs and plans as well as personal financial details.
Loan from the USDA
How can people acquire land if banks and credit unions refuse to lend them money? The buyer may be eligible for federal assistance if the property is rural and agricultural. The United States Department of Agriculture (USDA) offers a variety of low-interest subsidised loans with flexible terms. 1
Obtaining a Home Equity Loan
A home equity loan might be a good option for a buyer who already owns a home and has low debt. This form of financing uses the existing property’s equity to provide substantially better terms than a traditional construction or land loan.
Is Getting a Land Loan Difficult?
Because buying land isn’t as simple as buying a house, acquiring a land loan is more complex than obtaining a typical mortgage. Many banks and credit unions are hesitant to lend money for land purchases, so you’ll need to be very detailed about the area you want to buy and be prepared to submit surveys and zoning information.
Is Land Ownership a Good Investment?
Depending on the land’s location and purpose, it may be a good investment. Buying a ready-to-build property as a primary or secondary dwelling is riskier than buying farmland.
What’s the First Step in Getting a Land Loan?
Finding the correct lender for your purchase may be the first step in applying for a land loan. Although not all lenders provide land loans, there are plenty available. If you plan to work to develop land in your community, a local credit union can be a suitable choice. You’ll need to acquire all of the necessary documents, including a land survey and details about how you want to use the property.
Final Thoughts
Financing a piece of land on which to build your dream house is even more difficult than getting a mortgage. You’ll need to check the zoning and land-use limitations, as well as access to utilities and public roads, because lenders want surveyed boundaries. The lesser your necessary down payment and borrowing fees are, the better the land.
Seller financing, local lenders, or a home equity loan are the best ways to finance a land acquisition. If you’re looking to buy a rural property, see if you qualify for a USDA-backed loan.
Lastly, I hope this article helps you while applying for your loan after been done some extensive research especially on Industrial Land For Sale. Continue explore more interesting articles at Articles Fit, and don’t forget to share this article to your friends/ colleagues who might interested on this topic. Thanks for reading !
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