Alternative Options To Financing Land
Though there are a few different options for financing a land purchase, you donât necessarily have to go one of those routes. There are also a few financing alternatives that you may find more ideal than a traditional land loan. Before pursuing one of these options, however, itâs important to carefully weigh the risks.
- Home equity loan or line of credit: If you already own property thatâs appreciated in value since you purchased it, you may be able to leverage the equity to buy additional land using a home equity line of credit or home equity loan. You wonât have to make a down payment, but this can be a particularly risky option because you could lose your home if you default on the loan.
- Personal loan: Another option is to take out a personal loan, which can be used for just about anything. You may want to consider this option if the loan amount is on the smaller side and/or the land is in a condition that would make it tough to qualify for a traditional land loan. Just keep in mind that because the loan is unsecured, the interest rates can be as high as 30% .
- Buy a teardown: One workaround to securing an actual mortgage loan for a land purchase is buying a property that you plan to tear down and rebuild. Of course, this option is not without its own potential costs and roadblocks. Youâll need to secure permission from your lender and the appropriate permits, as well as pay for demolition.
Differentiating Between A Lot And Undeveloped Land
Be aware that banks or lenders may differentiate between a lot with a road and utilities developed on it and large piece of undeveloped land. The latter being the more difficult one to obtain a loan on. A piece of undeveloped land not being used for agricultural purposes would likely fall into the category of speculative borrowing/lending.
It will be good to talk to your bank or lending instituion to gain an understanding of what they classify as vacant land or a lot. As mentioned above, vacant land may be more challenging to get financing for.
How Do You Get A Land Loan Rates And Procedure Explained
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Purchasing vacant land can be an exciting prospect, but will often require a land loan. Land loans are a financing option used to buy a plot of land and, like a mortgage, can be obtained through a bank or a lender, who will evaluate your credit history and the land value to determine if youre an eligible buyer.
However, land loans are risky for lenders, since there is no home to act as collateral. Thats why its important to be prepared for a higher down payment and interest rate to secure a loan to buy land.
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Does The Government Of Canada Have Any Programs To Help You Buy Land
The Canadian Agricultural Loans Act Program may be available to you if you need assistance accessing a loan to buy farmland. This program was created to make loans more easily available to farmers who can use the funds from these loans to build or develop farms.
Under this program, the federal government backs lenders who offer CALA loans to minimize any risks if borrowers default on loan payments. More specifically, the government guarantees lenders the repayment of 95% of net loss on defaulted loans.
Loan amounts are limited to a maximum of $500,000 to buy farmland and build or improve buildings on the land, and $350,000 for all other loan purposes. For example, if youre approved for a $350,000 CALA loan, you still have another $150,000 accessible to you to buy more farmland, build another structure on the land, or repair a building.
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Who Offers Agricultural Loans In Canada
All big banks in Canada offer agricultural loans to borrowers looking for help financing the purchase of farmland. Banks also offer loans to help cover the cost of expensive farming equipment or to build structures on the land if required.
Traditional banks generally have stringent requirements that borrowers must meet in order to be approved for a loan. If you have trouble meeting these criteria, you may want to seek out an agricultural loan from an alternative lender. These types of lenders often have flexible loan requirements, making their loans easier to qualify for.
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Finding A Lender For Land Loans
The best banks for a land loan are usually local lenders. It would be advisable to ask around for a financial institution that does a land purchase loan.
Asking a real estate agent or local builder might be helpful. Doing an online search might also be beneficial. I would suggest land loan lenders near me as a search option.
Some of the larger lenders for loans on property include Guarantee rate, Quicken Loans, PrimeLending, Axos Bank, New American Funding, Ally, and PNC Bank.
The Truth About Land Loans
Are you considering custom building a home and need land loans? We all need a home to live in, thats a no-brainer. But what a lot of homebuyers dont consider is that they could build their own home instead of buying one that someone else has already lived in.
This can be an excellent idea since, as a home buyer, you get to build and craft your perfect home. That is until you take this idea and sit and consider what it might cost you to build it.
Building a home CAN be veryexpensive, but there are many ways to make your home building plans much morefeasible.
Land loans are one of those ways.There are quite a few things you need to knowabout land loans. Lets take a deep dive so you cansee if this mortgage type is right for you.
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Differences Between A Land Loan And Other Types Of Loans
If compared with car loans in terms of difficulty to get, land financing is like comparing running a versus running around the park of your neighbors. Not only is it more complicated to get because a land loan demands more money, but it is also is way riskier. Remember that you will be required to have an excellent credit record for getting a land mortgage.
On the other side, if compared with home loans, it is still riskier for the financial entity because of the lack of collateral with similar economic value. Besides, in the case of credit default, how easy would it be to sell a land lot? There is not such a market for land like the one for real estate. Consequently, you should be prepared for being required to put a considerable amount as a down payment. By the way, you can verify the percentage needed using the excellent land payment calculator on the left.
Types Of Land Loans And Interest Rates
Basically you can buy raw land or vacant lots with “residential lending” up to 160 acres’ with a “collateral loan” at Bank Prime Rate plus something, say Prime + 2%.
If your land purchase is bundled with a construction mortgage, you can likely get a less expensive amortizing mortgage at normal discounted mortgage rates.
If your home will ultimately be an acreage home, then acreage lending rules will eventually prevail.
If you intend to but a mobile/manufactured home, then manufactured home lending rules will also apply.
If you are intending to have a lake or cottage property, check here for those lending rules.
Same for your future construction plans, as construction mortgage rules will apply.
When all else fails, and your property is just not getting bank lender’s attention, there is always the world of private lending.
As mentioned, beyond 160 acres, your requirements are likely commercial development or agricultural in nature, and require loans specific to those purposes and related risks.
In all cases, a borrower needs to understand what it generally takes to get a mortgage. If you are unsure if you can, that should be your first step.
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Whats The Difference Between A Construction Loan And A Land Loan
A construction loan is a type of short-term land loan intended to provide borrowers with the money to buy land and build a house. These loans are sometimes set up to convert from a construction loan to a regular or permanent mortgage loan after the home is built. Construction loans have terms of around 1 year, after which the owner must either convert their loan to a mortgage or apply for one. These loans are intended for borrowers that are ready to build right away. Regular land loans, on the other hand, are better suited for borrowers that dont have immediate plans to build.
Rocket Mortgage doesnt offer construction loans at this time.
How Can I Use A Personal Loan To Buy Land
Some lenders allow you to apply for and use a personal loan to buy land.
- With an unsecured personal loan, you wont be required to provide collateral. Its different from a mortgage in that a mortgage is secured by the property youre purchasing, whereas buying raw or undeveloped land doesnt typically include a home you can use as collateral often resulting in higher rates to compensate for the higher risk to the lender.
- A secured personal loan could also be used to pay for land, however it is less likely the lender will accept the land as collateral since its a higher risk asset to seize. You may have to provide another piece of collateral such as a vehicle or some equity in your current home. Interest rates for secured loans tend to be more competitive than unsecured loans since theyre backed by collateral.
Not all lenders will offer personal loans that can be used to buy land, however many online lenders are less strict about the uses of a personal loan, which means as long as you make your repayments, you can generally use it for any legitimate purpose.
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Benefits Of Using A Personal Loan For Land Purchase
- Fixed rates: Personal loans have fixed interest rates, which means your payments will stay the same throughout the life of your loan.
- Might be less expensive: A personal loan could be less expensive compared to a land or construction loan since you dont have to worry about a down payment.
- Fewer requirements: Unlike with land and construction loans, you dont have to provide a detailed land development plan to take out a personal loan.
How To Get A Land Loan: Key Considerations
There are quite a few things youll want to investigate before buying a piece of land or building lot.
Understanding what to know about buying land is critical. Going in blind on a loan for land is a significant mistake.
Before pursuing loans for land, youll need to research the following:
- The property lines should be clearly marked, and research is done to ensure no encroachments from other adjacent landowners.
- The land will need to be considered buildable in most cases.
- Checking land use and zoning restrictions is critical.
- The more improved the land is, the easier it will be to get a loan from buildable to unimproved to raw land.
- Research to determine whether the lot is serviced publicly or privately .
- Does municipal water service the land, or do you need a private well installed?
- Ensure there is access to utilities and public roads.
- Make sure to investigate whether any easements encumber the land, especially ones that affect usability.
- Investigate whether there are any conservation issues.
- Research whether there are any property liens, both recorded and unrecorded.
- Ensure that a title search is done and that it is feasible to get title insurance to protect your investment.
Each of these items on the checklist is essential when getting a land loan.
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Where To Find The Best Land Loan Lenders
If youâre ready to pursue a land loan, one of the best places to start is your own backyard. Local lenders will have the ability to assess the land and its potential, as well as the flexibility to offer better terms. You can also turn to the web. Online lenders have little overhead, which means they can pass on those savings to you in the form of lower rates and fewer fees.
Whichever lender you choose, be sure to spend time evaluating all of your options and crunching the numbers. There may be many options for securing a land loan, but many arenât cheap.
What Are Land Loans And How Do They Work
10 Min Read | May 3, 2022
Maybe you want to build your dream home. Maybe youre looking for a place to run your small business. Maybe you want a vacation or investment property.
There are tons of reasons to buy land, and youve probably heard that land loans are the way to do it. But are land loans really a good idea? Heck no!
Well dig into what land loans are, how they work, and why they stink like a wet dog on a hot day. But dont worrywell talk about better ways you can buy land too. Lets get started!
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Is Improved Land Better Than Raw Land
Improved land is land that has access to roads, electricity, and water.
Unimproved land doesnt have access to these services.
Sometimes you can install septic tanks or connect the land to public utilities.
However, if you know you want to do this, then youll want to check well before you purchase the land.
This can be a long and arduous process.
The last thing you want to find out is that this is impossible after youve already spent a good chunk of change.
Is one better than the other?
It depends on your perspective and your purpose.
Unimproved land can require a substantially higher down payment and construction will also take longer.
So, if youre not looking to invest significant money or time into this project, improved land is often the way to go.
Wanting To Build A Home
Maybe you dream of building a home, and youre not ready to pay 100% cash. We get itbuilding a house is expensive! But land loans arent the way to make that dream come true.
If youre going to borrow money to build, its smarter to get a construction loan. You can build the house, then switch to a 15-year fixed-rate mortgage that lets you pay for the land and the house at the same time. Just remember to keep your monthly payment to 25% or less of your take-home pay so you can actually afford it!
You should also wait until youre really ready to buy land. So how do you know when that is? Heres how:
- Youre debt-free.
- You can put at least 20% down.
- You have an emergency fund with 36 months of expenses saved up.
If all thats true, then youre financially prepared to buy land, build your home and then pay it all off quicklybecause the grass just feels different when its yours!
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The Right Land Loan For You
Whatever you want the land for, make sure you investigate all your options before committing to a loan. It would be best to plan for the land usage before looking for a mortgage. This will allow you to apply for the right loan and show lenders that you are less of a risk.
You also need to understand what loan terms are best for you. For example, will you pay off the loan quickly, or is a more extended period required?
Buying land to build the home of your dreams is a big project, but if you have the right financing in place, it should make things a little easier. Due diligence is just as critical as buying a home and sometimes even more so when its land.
Hopefully, you now understand what you should know about buying land and getting a loan. There are many financing options, so its worth your time researching which is best for you.
About the author: The above Real Estate information on getting a land loan was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at or by phone at 508-625-0191. Bill has helped people move in and out of many Metrowest towns for the last 35+ years.
Are you thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!
Disadvantages Of Personal Loans For Land Purchase
- Fewer options for bad credit: Youll typically need good to excellent credit to get approved for a personal loan which means it could be hard to qualify if you have poor or fair credit.
- Smaller loan amounts: You can generally borrow $600 to $100,000 with a personal loan, which might not be enough to cover your expenses.
- Higher interest rates: Personal loans can come with higher interest rates compared to other funding options, such as traditional mortgages or home equity loans.
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Usda Rural Housing Site Loans
If youre planning to build a primary residence in a rural area, the U.S. Department of Agriculture has two loan options to consider:
- Section 523 loans are designed for borrowers who plan to build their own home.
- Section 524 loans allow you to hire a contractor to build a home for you.
Both loans are designed for low- to moderate-income families and have a repayment term of just two years. The interest rates, however, can be low. Section 523 loans, for instance, charge just 3 percent, while Section 524 loans charge less than the current market rate, with the rate on your specific loan fixed at closing.
