Planning to finance a land purchase can feel overwhelming. Unlike buying an actual house or even financing a business start-up, there just isn’t much advice available about land financing.
Unfortunately, even if your plans are to build an actual house or business on your land, lenders still view financing land ownership as a riskier venture for a variety of reasons and some are hesitant to loan out money to potential land owners. One of those risks for the lender comes from the fact that a person who owns land is usually less likely to repay their debt in the event of a financial crisis than a person who is paying on their home. Lenders, particularly big bank lenders, also sometimes have problems determining a specific value for vacant land like they can with houses.
All of this can make your options for financing a bit more tricky and limited than they might be for other types. So, what can you do? Here’s an overview of your options:
It Helps to Have Plans
If you have plans for developing your land, as opposed to just maintaining undeveloped land, you’ll be far more likely to be approved for a traditional loan. Adding value in the form of a home, for instance, will help lenders to view you as less of a risk.
If you are planning to build a home or business, you can choose from loan options through associations like the U.S Small Business Association and the USDA (if you qualify). Often, when it comes to land financing, loan terms are short (and down payments may be high) in order to minimize risk to the lender. Interest rates may vary, but if the land isn’t being developed, it’s safe to expect them to be high, too. However, if you are developing your land and you qualify for a loan through one of these programs, your interest rate can be more than reasonable — even a shockingly low rate.
Whether or not you are planning to develop your land, owner or seller financing is a popular option at LandForSaleStore. When you buy from us, you are already approved for financing with no credit check and no application process. You simply pay the small non-refundable document preparation fee as well as sign the agreement, and then no payments are due for another month. This gives you ample time to cancel and doesn’t require you to fight for your down payment back since you haven’t even made it yet. Many people find our seller financing to be the easiest, most desirable purchase option.
Try Credit Unions Over Major Lenders
If you’d rather head to the bank, try local credit unions. These credit unions are often much more willing to consider your loan requests, as they can more easily judge the value of the local land. While major banks are still an option, they are less likely to provide approval, particularly for land that isn’t going to be developed.
Home Equity Loans
This loan option is a valid one, but it can feel risky on your end of the deal, as failing to pay a home equity loan in the event of financial catastrophe can lead to the loss of your house. However, a home equity loan can be significantly easier to get than a loan for land, and may be worthy of your consideration. These loans don’t have down payments, and even undeveloped land doesn’t equal an enormous interest rate, because your home is your collateral. There are implications to using a home equity loan for land, though, like certain tax implications that you’ll want to thoroughly research before making your decision.
Home Equity Line Of Credit
Like a home equity loan, a line of credit secured by your home is another possibility. With this option, the financial institution approves a certain amount that you can use, usually up to 70% of the value of your home minus any debt, like a mortgage. Until you use this line of credit you don’t pay anything. This may sometimes be a better option than taking a loan where you get all the money immediately and also start paying interest on it immediately.
Choosing the Financing Decision That’s Right for You
Financing land can be much simpler than financing a house and you still have quality options to help you purchase the property of your dreams. Your process to buying a piece of land should begin with thoughts of financing, because it will inform your purchase beyond just the cost. Buying land in a highly valued area, for instance, could easily turn into profit for you later on.
When you do choose your land, don’t feel rushed into picking any one choice. Research your options, speak with different providers, and make the choice that feels right for you and your family. Most importantly, you’ll want to make sure that your lending terms aren’t going to outweigh the incredible benefits of land ownership.