 |
|
|
|
|
|
Main Page-- Mortgage
Rates
Land Loan
Improved property, zoned for your intended use, will be easier to get a loan for than unimproved property. Buying land with immediate plans for construction is the easiest type of land loan to secure because the lender will be paid off when you get a mortgage on the structure.
Land loans are loans made to individuals for the purpose of purchasing real estate which is land-only. This means that the real estate is not yet built upon or used for farming or industry. Land loans are risky to investors because the value of the land is not as stable as the value of improved-upon (or built on) property. Land loans are easier to obtain and have better rates when accompanied with a plan for land improvement.
Land Contract Finance
This type of financing has many of the same advantages as purchase money mortgages, such as deferral of income taxation and flexibility of terms. Its main disadvantage is that land contract cannot be resold to FNMA (Fannie Mae), although few private secondary market investors may be willing to buy contracts. Because of this situation, most lender would require at least 40%-50% on land if you do not build on it for the next 6-12 months.
The distinguishing feature of land contract is that the seller retains legal title to the property until the buyer has made all of the payments on the contract..
The land contract is made by a seller who owns
the property free and clear. Such seller need only negotiate the term and
interest rate of the contract, along with the amount of down payment, if
any.
Looking to build on your land in a year or less?
Purpose of land loans
Many people
buy land which is not yet built upon with the intention of building their
own home on the land at some future point in time. Land loans finance the
purchasing of such property. Land loans may also pay to finance real
estate investment land which is purchased by investors in the hope that
the area will become popular and value of the land will rise.
Land
loans are risky loans
Land loans are risky loans for investors because
of the chance that the land will decrease in value. With a home loan, a
decrease in home value is less likely and the home loan is secured by the
home and the residential property on which the home sits. With land loans,
there is only the land as equity and, if the land isn’t worth anything,
failure to make repayment on land loans can result in costs to
lenders.
Because land loans are risky loans, they often have higher
interest rates than do home loans. Land loans may also require better
credit. Land loans are story loans which means that the private
institution funding land loans is going to have their representative learn
the story behind your purchasing of the land and your intentions for
development of the land. Land loans may or may not include financing for
the improvement of the land.
Types of land loans
Land loans
differ based on property type. Land loans are generally differentiated
between raw land loans, semi-improved land loans and land loans with
improvement plans. Raw land means that the land is completely unimproved
without any access to sewers or electricity or any of the amenities of
modern life. Raw land loans are the riskiest to the lender and the hardest
to obtain by the borrower.
Improved land is land which has been
built upon. Semi-improved land has relatively assured access to things
like sewers and electricity. Land with improvement plans is unimproved
land with a time-frame based plan for improvement which may me planned
entirely by the borrower or in conjunction with community development.
These types of land loans are the most common of land
loans.
Repayment of land loans
Land loans are usually fifteen to twenty
year loans which are repaid on a monthly basis with a calculated interest
rate which may be either variable or fixed. The amount of land loans will
vary dependent on land price, credit history of the borrower and amount
paid in down payment. As with other loans, higher down payment on land
loans results in decreased total costs of land loans. Repayment of land
loans should follow the terms and conditions of the signed loan
contract