Whether or not you can secure a mortgage for land depends on the lender. Land loans are often riskier for lenders because there’s not much collateral for lenders to hold against you. Unlike a home that a lender could take from you if you stop making your payments, taking your land won’t leave you without a place to live. This makes a land loan that much riskier for lenders.
Fortunately, there are lenders out there that will lend you money to buy land. Keep reading to find out how you can do it too.
What’s the Land’s Purpose
First, lenders want to know what you intend with the land. If it’s not to build on it, you’ll have a tougher time finding a lender. If you do have plans to build a home on the land, you may have more options. Land loans without plans to build on it typically require much larger down payments than those that you will build on.
The Loan Term
Unlike a home loan, land loans are much shorter term. Most land loans have a term of two to five years. They also have a balloon payment at the end of the term. This means that the entire balance of the loan is due at the end of the term. If you plan to build a home on the land, though, you may secure a loan with a longer-term.
Buying Agricultural Land
While most lenders focus only on land loans that will eventually lead to a home being built on it, you may be able to find a loan for agricultural land too. Lenders that offer these loans typically require exceptional qualifying requirements including high credit scores, low debt ratios, and large down payment. Most lenders require you to put down at least 30 per cent if you want to buy agricultural land.
Why Should you Buy Land?
Land can be an advantageous asset in the right situation. Whether you want to buy land to sell it off to commercial land developers or you want to own land to self-build your own property, both options have its advantages. Either way, you stand to make a profit if you can pay off your mortgage and sell the land off or use it to build your home.
Interest Rates on Land Loans
Most lenders charge higher interest rates for land loans. Make sure you’re prepared for the higher payment. Not only will you have a higher payment, though, you’ll also have a shorter term. Both of these factors combine to leave you with a high payment that if you don’t keep up with, you’ll lose the land.
Before you take out a land loan, make sure you can comfortably afford it. Also, make sure you enhance your qualifying factors. The less risk of default you pose, the better terms you’ll get. Show lenders that you aren’t a high risk of default and you may get attractive terms on your land loan.