Loans For Land
If you want to buy a land, you are most probably worried about all the complications it involves. But the process is not as terrible as you believe it to be. Purchasing land becomes much simpler if you first analyze your requirements and determine which types of land will suit you best. As buying land is in most cases a serious investment, it is better if you consult a financial advisor or loans for land accountant prior to making any investment. You need to consider the following factors when evaluating the property.
One important factor is location. If you want your land to be close to schools, shops, cinemas and have easy highway access, be prepared to pay more. Keep it in mind that builders will demand more money if your want to build on remote plots of land. You also need to check if electricity and telephone facilities are easily accessible. If payment of homeowner's fees is mandatory, you must have to pay it. Otherwise, the homeowners' association could even foreclose on your property. Another factor you must consider before buying land is whether building is possible on it or not. If the plot cannot support a foundation, or does not have access to a sewage system, it will certainly lack development potential. Try to have a clear idea of the soil quality and topography. If the land is damp or moist, or located on hills or steeps, you will have to pay much more for building on it. And if the land isn't accessible via a public road, you and your neighbors will have to maintain it. So, think carefully about the likelihood of floods, heavy rain, or snow that could limit road access in the future. Check the environmental regulations and local zoning ordinances so that you don't have to land in trouble in the future. Choose such a location that has the potential of increasing the resale value in case you want to move away at some point of time.
Loans for land options
Once the first important step of choosing your land is complete, it's time to secure financing. Although getting loan for land can be more difficult to locate than that for an existing home, a number of options are still available.
Loan officers at local, savings, and community banks are likely to be familiar with the area in general, and possibly even your plot of land in particular. You stand a better chance of getting a loan if there are other improved properties, or brand new properties, in the same locality.
Conventional seller loans usually require a 20% down payment, with the seller holding a note for the balance. The interest rate and terms of the loan, however, are negotiable. There are a few other factors that play a role in deciding the final terms of the loan include: the location, size, zoning, and intended use of the parcel.
It always makes sense to choose a loan package that adequately covers both the cost of the land and the cost and complexity of building and construction. Never forget to factor in the cost of liability and homeowner's insurance when opting for a financing package.
Seeking the opinion of a qualified tax professional is better in such situations as real estate investments can really be a complicated matter.
Lenders generally consider land loans to be much riskier because the loan's collateral, the property, is currently not being used. In such a situation, it becomes easier for the borrower to walk away and leave the lender with the land. Considering the amount of risk involved, down payments and interest rates are higher for land loans than they are for mortgage loans.
Unimproved or raw land
It is harder to get a loan for unimproved land, or raw land, with no plans for improvement because it is considered to be a speculative investment. Obviously, a raw land loan will require more down payments and a higher interest rate than what is needed for an improved property loan. Many lenders demand a 50 percent down payment, but it is possible to find a lender that will only require a 20 percent down payment. A local lender who knows the property will be more willing to work with you on the loan than a lender who has no knowledge of the area.
You should always insist on a warranty deed and title insurance when purchasing the land to make sure you will have clear title to the property.
Improved property
Securing a loan for improved property, zoned for your intended use, will be a lot easier than unimproved or raw property. Purchasing land with immediate plans for building on it is the easiest type of land loan to secure because the lender will be paid off when you get a mortgage on the structure.
A home equity loan, or refinancing your current mortgage with cash out to buy the land, may meet your needs better than a land loan. As your current home secures the home equity loan, the lender considers it less risky. So, the rate of interest also comes down.
Like home equity loans, land loans typically have 10 to 15-year maturities. The interest on your home equity or mortgage loan may lead to a tax deduction on your income taxes.
You can avail of tax deduction on the interest expense on a land loan if the land is held as an investment. It is better to consult with your tax adviser if you plan to take this interest deduction.
In case you find that securing loan for land against the equity in your home does not suit you, you can seek the assistance of your credit union for a land loan. You should also hold negotiations with some mortgage brokers in your area about land loans.
These loans may be called story loans, because the lender has to understand the story behind the property and your plans for the property before they agree to give you a loan. It is always a good idea to use a mortgage broker when you are looking for a land loan.
