Yes, 100% land loans still exist unlike what your banker told you. The problem is that when you are buying land for sale at a reasonable price, you don’t really have any collateral on the loan, and that is what makes such loans for land almost nonexistent. Unless, of course, if you are negotiating for a land construction loan as part of your land financing. And if they are offered to you, then you should take a closer look at the land loan rates that your lender is asking for. Almost in all cases, for any 100% loan, the interest rate will be much higher, and you don’t have much room for negotiation without any sort of down payment.
Having said that, I will try to decrypt another notion and it is that of land equity loans. While you can get equity on a land mortgage, the truth is that the equity you will generate will not be worth the time to pursue it. That is, of course, with the exception of a residential land loan that will be shortly followed by a residential construction loan so that there is something built on that land. You see, land financing can be very tricky due to the fact that the market for vacant land loans is much steeper than that of a home loan.
Every person is looking for cheap homes for sale, but how many of those people would consider cheap land for sale? With an already built home, the equity is there, while with just land, they would probably need to apply for new construction loans as well to take full advantage of its value. In other words, your equity lender will have to account for the fact that most people will not even consider looking into construction loan rates to see if it would make sense to actually build something on that land. And that is a correct assumption. If you look at last year’s land sales, you will notice that only a small percentage was actually sold through a residential land loan and followed by any kind of construction loans.
Of course, there are also farm loans and while you would expect that these share the same land loan rates, you would have been mistaken. In fact, farm loan rates are lower, and that is due to the fact that they are treated as a combination of commercial construction loans and vacant land loans. While the loan will still be mainly for the purchase of buying land, if you were to use a land loan calculator to determine your rates and payments, you would see that the number are much more attractive. And, again, that is due to the fact that a farm has additional equity.
The bottom line here is that most loans for land are treated as lot loans up until the time when something is built upon the land so that additional value is added to it. That is why I always tell people who are looking for rural land loans to also look into construction loans, how they work, and what their rates are like. You don’t want to get approved for any loans on land only to discover that your scheduled construction will have to be delayed due to the numbers that your construction loan calculator come up with. That would definitely set you back. Instead, you want to know how to properly take advantage of any cheap land for sale by owner that you may find, by negotiating a price that would not only allow you to find land loans easily, but also account for any potential construction loans!