Land loans are used to purchase a type of bare land like a vacant lot or small acreage. … Lenders looking to offer a loan for the purchase of land tend to require a larger down payment and prefer to earn higher interest rates for land loans because they are deemed to be riskier than other types of mortgages or loans.
This can be a good option for getting favorable terms, especially if the seller is eager to unload the land and the market is cool. Since this is an agreement between two private citizens, everything is negotiable, from the down payment to the interest rate. It is important to have the papers reviewed by an attorney before signing anything to avoid loopholes and unpleasant surprises for either party.
Local Banks and Credit Unions
Local banks and credit unions typically look more favorably on land loans than the big behemoths do. They also may offer better terms due to their local knowledge of the property. All the same, a potential borrower will need to present a loan package with specs and plans for the land, as well as personal financial information to prove creditworthiness.
How can buyers purchase land if the banks and credit unions do not offer to finance it? If the property is rural and agricultural, the buyer may receive federal aid. The United States Department of Agriculture (USDA) offers an assortment of subsidized loans with minimal requirements and advantageous terms.1
Home Equity Loan
A buyer with existing property and little debt may want to consider a home equity loan. This type of loan taps the equity of the existing property, granting much better terms than any regular construction or land loan
- Minimum Loan Amount: $2,000,000
- Maximum Loan Amount: $25,000,000+
- Term Length: 12 to 36 Months
- Time to Close: 2 to 3 Weeks
- Maximum LTV: 65%
- Lien Position: 1st
- Recourse: Flexible
- Commercial Land
- Agricultural Land
- Residential Land
- Industrial Land
- Raw Land
- Acceptable Markets: AZ, CO, GA, HI, NJ, NY, OR, TX, WA, and Miami, FL (others States on a case by case basis)