Construction Loans

Construction Loans

When you apply for land loans, commercial or residential construction loans, or any other loan for that purpose, the first thing that lenders consider is what your collateral will be. Whether you find some farm land for sale in Texas and you want it for development, or if you want to buy hunting land for lease in Alabama, you would need a raw land loan either way, and the unimproved land that you will buy will be your collateral. So, some would say that loans for land are actually secured loans. That, however, is not exactly the case for loans on land or construction loans.

When you get a construction loan, your collateral is whatever you are planning to build, and when you get a vacant land loan, that vacant land secures the loan. Even though both of those are effectively secured loans, the truth is that they are much less secured than home loans or any mortgage. Think about it. Let’s assume that you have found some cheap land for sale in Colorado, you found one of the best loans to buy it, yet you failed to make a few of your payments and your lender takes over the unimproved land. Let’s make the same assumptions, but instead of Colorado land for sale, you found an apartment in Colorado and got a home loan to buy it. Is it easier for the lender to make their money back on land loans or home loans? The answer is obviously the latter, whether we are talking for loans for land or construction loans, because of those don’t have a constructed property on them to be sold.

People are always looking for houses to buy in Colorado, or any other state, but you won’t find nearly as many people looking for Colorado land for sale. That is why land loans and construction loans may be harder to find and will require some additional research on your end. It is for that very same reason, that land loans rates are usually a little bit higher than those for home loans. Then again, that’s not to say that you cannot get a vacant land loan or even equity loans on land for that purpose.

There will always be lenders out there offering land mortgage loans and residential construction loans, but they just won’t be as easy to find as those who offer home loans, due to what we discussed above.  I would recommend that if you are trying to get approved for construction loans or land loans, you take the time to make a good business plan with a clear time line about what you plan to do with the land that you want to buy. Just the other day, I was presented with a development plan, as part of an application for loans for land from a person who managed to get a good price on some Texas land for sale. He had presented us with all the costs that where involved with construction and how he was planning to make his money back within a reasonable amount of time. Based on my experience, I would say that this person would get approved for any land loans. He had conducted a lot of research, secured a good price for the land, and had a clear cut plan for the repayment of the loan. That’s all you need to do as well if you are applying for commercial or residential construction loans and land loans.