Whether you’re looking to build a new home, start a business, or pursue your favorite outdoor activities on your own turf, buying land can help you meet your personal or business objectives. While most people are familiar with the concept of a mortgage, the process of financing land is a little bit different.
To finance land, you’ll need to find a lender that is willing to issue you a land loan. These loans are made by certain banks and credit unions to cover the cost of acquiring a piece of land. However, the process for obtaining a land loan and the terms of this type of loan are different than a traditional mortgage. We’ll break it down for you below:
How To Obtain A Land Loan
In the market for a beautiful Central Florida lot? We’ll walk you through all the right steps and considerations to finance land.
- Find The Right Lender
While lenders offer mortgages, far fewer offer land loans. You’ll need to do a bit of research to find a bank or credit union to fund your purchase. It’s also important to shop for rates. Land loan rates are usually higher than traditional mortgage rates. If you’re having trouble finding a lender, Palmetto Realty can make several recommendations for reputable lenders in Central Florida. - Save Up For A Down Payment
Unlike a traditional mortgage, land loans will almost always require a 20% down payment. You can also expect there to be closing costs as well as the possibility of taxes owed at closing. You’ll want to work with your lender to estimate exactly how much you’ll need. - Be Prepared To Discuss Your Plans
Your lender is going to want specific details on how you plan to use the property before issuing the loan. If you’re going to build a home, they’ll likely want to see the contract. If you’re going to start a business, they might ask to see your business plan. Land loans can be risky for lenders and the value of the land is heavily contingent on what you plan to do with it. - Submit Your Application
While lenders may ask for more information than a typical mortgage application, the process of submitting the app is fairly similar. After you apply, your lender will conduct an appraisal of the land and check your credit. Once you complete all the paperwork, the loan will take several weeks to process before you can close.
Types Of Land Loans
You’ll find three different types of land loans: improved land loans, unimproved land loans, and raw land loans, each type represents a different category of property. The right loan for you ultimately depends on the type of land you plan to buy.
- Improved land is a term used to describe properties that have access to basic infrastructure and utilities. These lots are usually ideal for residential or commercial construction. These land loans are the most common.
- Unimproved land is a partially developed lot. These properties might have utility access, but additional infrastructure may be required before the land can support development.
- Raw land is a property with no infrastructure or utility access and no previous development. Raw land loans are tricky to obtain because lenders will generally want to see your plans for how you’ll develop the infrastructure to support your vision.
Financing land can be a bit more challenging than a typical mortgage, but having skilled land brokers in your corner can make things easier. The team at Palmetto Realty would be happy to assist you today.