How to Get Loan to Buy a Land

Buying land can be an intriguing prospect, but we don’t often require land.  Land loans are financing organizations used to purchase land such as a mortgage for clients, in

Buying land can be an intriguing prospect, but we don’t often require land.  Land loans are financing organizations used to purchase land such as a mortgage for clients, in return, they earn profits. But before they purchase on your behalf, they often evaluate your credit score to determine your eligibility. 

Land loans are usually risky for financing organizations because there's no home to act as collateral.  And that's why you need to be prepared for higher interest rates and a down payment to get a loan for land.

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How to get a loan for land     

The process of securing a land loan is the same as the one for getting a traditional mortgage. Remember, different types of land loans have different qualifications but all require a good credit history, consistent income, and debt to income ratio between 30% to 40%.

 Because land loans are often risky business, many lenders offer strict qualifications.  They are often short-term between 2 to 5 years followed by a balloon payment.  However, there’re other special options, especially if you’re going to use the land to build a home.

What are the different types of land loans?  

Depending on the buying process, where you purchase and for what purpose and options for securing a loan may vary.  Here are popular land loan types and how to buy land.

Raw land loan

Raw land is the type of land that has no improvements and isn’t cultivated like a home.  Purchasing raw land is often cheaper and more flexible because you can use that land for any activity based on federal laws.

Raw land, on the other hand, can be risky for financing providers since it may take ages before giving returns. To easily get raw land, ensure you've a good credit score, substantial down payment, and solid development plan.

Lot land loan 

Unlike raw land, lot land comes with different infrastructure like water and electricity already in place. 

Another benefit is that lenders feel more comfortable offering lot loans since their upfront prices are often lower. However, you’ll need a 10%-20% down payment to get this type of loan.

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Construction loans 

A construction loan is a loan of land meant to fund construction costs. The loan’s period often depends on the construction process before converting into a standard 15- or 30-year mortgage. 

Once approved, the financing organization will pay the construction professional at each construction stage.  Because contraction loans are riskier, most lenders require a minimum 680 credit score, detailed project plans, and a 20% down payment, including an estimated budget and schedule.  

Even though it looks daunting, a stable income, a high credit score, a good location, and a low DTI ratio can boost your chances of landing a construction loan.

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Factors to consider when choosing your land site 

Most financing organizations aim to fund less expensive, less risky, and easier projects.  Here are factors to help secure a land loan:

Boundaries and surveying  

A survey can help you avoid potential legal headaches in the future.  Ensure you’ve a detailed survey before purchasing a land loan. This helps you know the exact boundaries of your land. 

It’s worth knowing that most lenders will require a detailed American Land Title Association boundary survey before approving your land loan.

Utilities

Confirm if the land is accessible to utilities like water, sewage, electricity, and paved roads.  Although most lands are accessible to these items, if you miss any, ensure you get the necessary permits and land space and adhere to any local health and ordinance codes.

Zoning and restrictions   

Depending on land plans, ensure the zoning allows you to complete your project.  For example, if you're purchasing land to build a home, make sure your land is zoned for residential use. 

Further, read up on any other guidelines for land and what you can and can’t do.

Future changes

When buying land, check if there are any construction plans in place like a school, shopping center, or new highway. Construction of any of these facilities can affect your land’s value, so ensure you include such factors.

You can also do your own research in your planning to make sure the land's value increases as days go by and matches your needs.     

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