Understanding the Land Purchase Loan Process


Did you know that the minimum down payment for raw land is 35%?

Are you wanting to buy land? If you are, you must secure a land purchase loan first.

This loan is a process you must go through before buying the land. Since purchasing land is a serious commitment, having the funds ready to go is necessary.

Securing the funds for buying land will take time. Why not use that time to learn about the land purchase loan process?

Want to learn that process? Read on to find out!


The Basics of Land Loans

The land purchasing process starts with what the potential sale entails. Buying land is different from buying a home or another type of property. Here are the things to look out for when getting started.

Boundaries

Before you can even think about land loans, you need to know the boundaries of the land. Imagine if you were to buy land accidentally, thinking it was part of your property, only to find out it wasn't.  Surveys will help determine the boundaries of the land. Once you have that information, you can start to look into land loans.

Zoning

The next thing to consider is zoning. You need to guarantee that the land you want to buy becomes zoned for what you want to do with it.  For example, let's say you have land zoned for farming. If so, you can't use it for commercial purposes. If you're unsure about zoning, you can consult your local zoning office or the land's current owner.

Title Search

You also need to do a title search. This search will help you determine if there are any liens or encumbrances on the land.  A title search will also help you determine the rightful owner of the land. This search is essential because you don't want to buy land that belongs to someone else.

Access

Utilities play a significant role in land loans. After all, what is the use if you can't get to it or use it?  The first thing you need to consider is access. How will you get to the land?   Is there a road already in place? If not, how much will it cost to build a road? You also need to think about utilities.   Does the land have electricity? How much will it cost to run power if not?  Does the land have water? If not, you'll need to drill a well. These are all important considerations when taking out a land loan.


Now that you know the basics of land loans, it's time to start the loan process.


What Are the Different Types of Loans?

There are different types of land loans, each with its own set of terms and conditions. Here are the three types of land loans:


Raw Land

Raw land loans are for undeveloped land. Developers or investors who plan to improve the land are the ones that'll use this loan.  The terms of a raw land loan are usually shorter than other types of land loans. That is because the land is more of a risk for lenders. The down payment for a raw land loan is also usually higher. This higher payment is again because the land is a financial risk.

Unimproved Land

Unimproved land loans are for land that often doesn't have any improvements. People who want to build a land-based home are the ones that use this type of loan. The terms of an unimproved land loan are usually shorter than an improved land loan. Why is this? The risk makes the lenders shorten the times, so that chances of defaulting are lower.  The down payment for an unimproved land loan is also usually higher. Unimproved is like raw. There's a slight difference.  There might be some development. As well as some access to utilities. That means it's more affordable and accessible than a raw land loan.

Improved Land

Improved land loans are for land that already has access to utilities. It's also the most developed land. As well as access to roads and amenities.  The terms of an improved land loan are usually longer than a raw land loan. That is because the financial risk of this land is lower.  These lands are more expensive than unimproved or raw land. The good news is that interest rates are lower. And the conditions for down payments are lower, too.


How to Qualify for a Land Purchase Loan

You want to know how to take out a land loan. But first, you have to qualify for one. There are different qualifications since there are different types of land loans.  General guidelines do exist for these loans. Like any other loan, the lender will need to see evidence of your ability to repay the loan. That includes taking a look at your credit source and debt-to-income ratio They might also want to see the land as collateral for the loan. Why is this done? It gets done in case you default on the loan.  Sometimes land becomes collateral in place of a down payment. That is because land can often appreciate in value.  Credit scores will decide the percentage of a down payment you'll have to make. Thus, time allowing, it's a good idea to improve your credit score before applying for land loans.

For a raw land loan, the lender will need to see evidence that you have the means to develop the land. This evidence might include a business plan or land development experience.

For an unimproved land loan, the lender will need to see evidence that you have the means to build a home on the land. This evidence might include building permits or land surveys.

Of course, improved land doesn't need as much of an explanation. The land already has access to utilities and roads.

 

Get a Land Loan Today

Now you know everything there is to know about a land purchase loan. Loans for land are different from other types of loans. Land can often appreciate in value. That makes it a good investment. It's crucial to do your research before taking out a land loan. Now that you know how to qualify for land loans, you're ready to start the process. Reach out to a land loan specialist today.

Looking for a loan now? Contact us so we can help you start the process!