Common Types Of Land Loans
If you are interested in buying some land and want to know what type of loan would be ideal then this is the article for you. If you have some money to put in as a down payment then there are currently a few options for you.
From a banks perspective land loans carry more risk then developed land. This is because the bank is taking on extra risk. Banks do not want to be property developers so if they ended up owning the land they would have to sell it and it is harder to sell raw land then to rent out an existing building. This is also why interest rates are higher for these types of loans.
Along with the fact that it is raw land there are several other things that also come into play. Possibly the biggest issue is what type of land it is and the geographic location. If your land is in the middle of the dessert then you will likely be denied. If your land is right by a new Wal mart then you will likely be approved. Again it comes back to planning.
Some people pick land that does not even have utilities available to it. If that is the case then the bank might laugh at you. If on the other hand you have done your due diligence and figured out where the power and water is coming from you have a chance.
Make sure that if you are developing raw land you get a staked survey done and that you know for sure if you can get the required permits and utilities that you will need later down the road. If you have plans to immediately build on it you will have an easier time getting it then if you want the land for pure speculation.
When it comes time to finance the land you may be surprised to hear that a home equity line of credit or a second mortgage is often times your best bet for getting financed. This is because your home represents another piece of collateral. Banks do not like high risk projects.
Land loans usually have a ten to fifteen year term. Homes have thirty years but you live in them and they are a finished product. Raw land is not so the bank will not take on the extra risk of sitting on it for thirty years.
Land held for investment purposes can usually help you come tax time. This is because the IRS lets you deduct the interest expense in most cases so the real rate is less then the nominal rate.
From a banks perspective land loans carry more risk then developed land. This is because the bank is taking on extra risk. Banks do not want to be property developers so if they ended up owning the land they would have to sell it and it is harder to sell raw land then to rent out an existing building. This is also why interest rates are higher for these types of loans.
Along with the fact that it is raw land there are several other things that also come into play. Possibly the biggest issue is what type of land it is and the geographic location. If your land is in the middle of the dessert then you will likely be denied. If your land is right by a new Wal mart then you will likely be approved. Again it comes back to planning.
Some people pick land that does not even have utilities available to it. If that is the case then the bank might laugh at you. If on the other hand you have done your due diligence and figured out where the power and water is coming from you have a chance.
Make sure that if you are developing raw land you get a staked survey done and that you know for sure if you can get the required permits and utilities that you will need later down the road. If you have plans to immediately build on it you will have an easier time getting it then if you want the land for pure speculation.
When it comes time to finance the land you may be surprised to hear that a home equity line of credit or a second mortgage is often times your best bet for getting financed. This is because your home represents another piece of collateral. Banks do not like high risk projects.
Land loans usually have a ten to fifteen year term. Homes have thirty years but you live in them and they are a finished product. Raw land is not so the bank will not take on the extra risk of sitting on it for thirty years.
Land held for investment purposes can usually help you come tax time. This is because the IRS lets you deduct the interest expense in most cases so the real rate is less then the nominal rate.
About the Author:
Spencer is an educator in the loan industry. He teaches people about mortgage loans for people with bad credit, business loans, and bad credit home loans.
posted by Credit Counseling at
2:02 AM
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