Financing land purchase

Land Purchase Loan

If you have found the land on which you wish to make your dream house a reality,or want it as an investment, and all you need is finance, a land purchase loan will provide you finance to acquire the land.

Loans strictly for land purchase can be as scarce as good residential lots. While many lending firms around the nation compete to provide mortgages for the purchase of a house on a lot, only local institutions typically will be interested in lending for an empty lot. You can apply separately for a construction loan to build a house on the land you have purchased.

A land loan is typically a smaller loan than a home mortgage and one can purchase the land then take the time to build later.

The disadvantage is land loans can carry higher interest and bigger down payments than conventional loans, due to increased risk.
Lenders loan in most states. Land loans are usually interest only, sometimes amortized over 10 to 15 years, or more.

Land Purchase

There are several competitive land purchase loan programs. Minimum documentation requirements for a land purchase loan in many cases are as follows:

• 2 years tax returns
• Personal financial statement
• Realtor comps (3) or appraisal
• Purchase agreement

Many lenders loan for financing land purchase for residential subdivision, industrial development and commercial building development from $500,000 up. Getting loan for purchase or refinance of land for construction of personal residence or other non commerical purposes is more difficult.

Nearly all building and development begins with the purchase of raw land. In the current environment, many lending sources will not make loans on raw, undeveloped land. Conventional lending sources such as banks, savings and loans, pension funds etc. often are not interested in raw land and development financing.

There is evaluation in financing of raw, undeveloped land. one needs to work out the highest possible Loan-to-Value ratio on the land collateral.

Short term Land and Development Loan Requirements

The Basic Requirements below are usually very firm. However, Some exceptions may be made in the case of very good credit, high down payment etc.

The land owner or potential owner must have a good development plan (subdividing into lots, putting in infrastructure, etc.), and a realistic exit strategy. Generally lenders will not make loans on raw land alone unless the development plan is in place.

Some BASIC REQUIREMENTS for financing land purchase used by some lenders are: (by no means all inclusive or the norm)

• Land and development loan total must be a minimum of $500,000.
• Property must be owned by borrower or be under a binding contract.
• All approvals required to obtain permits must be in place.
• The borrower must be prepared to have a 40% or better cash investment in the land to be acquired or in the land which they already own. If they own the land, the borrower must be able to prove the 40% or better hard cash investment.
• The amount of down payment required by the borrower must be close to 25% of the total loan amount. The total loan amount may include land purchase, payment of existing first mortgage, funds for infrastructure and subdivision costs and the cost of construction.
• Loan is interest only.
• Term: 12 to 36 months, possibly longer.
• Full recourse (personal guarantees) to all owners, partners etc.
• Lender must be able to secure with a clear first lien on the land and all.
• Infrastructure and construction.