Loans For Land

Loans For Land

You’ve seen the parcel of land every day for years as you drive to and from work. Now it’s for sale, and you know that you can put it to good use. Maybe the parcel of land will make a great location for your dream house. Maybe it’ll be the perfect site for your new business venture. Maybe you just want to purchase the land so that no one else will build anything on it. Whatever your reasons for wanting this plot of land, the odds are good that you’ll need a land loan to buy it. So, what’s so special about land loans?

A land loan is similar to a standard mortgage loan that most people rely on to buy their homes. However, there are some key differences between the products.

For one, lenders usually require a larger down payment for land loans – or other loans used to purchase land. The reason for this is simple: Lenders view land loans as being riskier than loans used to purchase businesses or residential properties. That’s because it’s far easier for buyers to walk away from land without paying their bills.

That’s why the industry standard for land loans is a down payment of 20 percent. For comparison’s sake, most lenders only require down payments of 5 percent for borrowers with good credit who are applying for residential mortgage loans.

Lenders are also more cautious when giving out land loans. Again, this is because these loans are considered riskier. Lenders want to see a return on their investment. They want assurances that the buyers to whom they are lending money will eventually pay them back.

Because of this, lenders will be interested in learning what you plan to do with the vacant land you’re purchasing with their land loans. They’ll feel more comfortable if you plan to fill the land with an income-generating business. Again, this gives lenders more assurance that you’ll actually be able to pay back your loan.

Many buyers will want to use their new land purchase as passive open space. Others may want to leave it as an activity ground for their horses. If this is your desire, you’ll have to somehow assure your mortgage lender that you won’t default on the land loan. You can do this by disclosing your annual income level and by boasting a strong credit history.

In other ways, taking out a land loan is much like taking out any other mortgage loan. Lenders will be more willing to work with you if you have a steady, solid annual income. They’ll be more willing to lend you money if you have a good credit score. And they’ll be less likely to deny you if your level of revolving debt isn’t too high.

Taking out a land loan is far from an impossible task. But it will require you to jump through certain hoops. Just be patient and honest, and always make sure that potential lenders know that you are not a risky borrower.