All a Buyer Needs to Know About Land Loans – Part I
Land loans are used to purchase land without a house on it. You can use a land loan to build a home or a business.
There are several types of land loan. Vacant Land Loan or Raw Land Loan
This is unimproved land that cannot be developed due to the lack of utilities including roads, water and sewer lines.
Undeveloped Land Loan
Unimproved land is comparable to raw land in that it may have some older structures or basic infrastructure, but it typically lacks the full range of water, electricity, and other amenities that you’ll require. There may have been a house on this property at one time, but not anymore.
Improved Land Loan
This kind of land is suitable for building a home and has access to utilities and highways. These areas could also be referred to as lots.
How do Land Loans Work?
Land loans are similar to conventional mortgages in that they require a down payment, and are backed by the assets they buy, and are repaid over time. A loan officer will assist you in applying for the loan and examine your credit while you work with them. With land loans, the borrower would follow a similar process to that of a typical home loan.
Although individual lenders may choose to set more strict requirements, the Federal Deposit Insurance Corp. sets minimum down payment requirements for land loans. The FDIC requirements are as follows:
- Raw land: 35% minimum down payment
- For unimproved land, a 25% down payment is required.
- 15% minimum down payment required for improved land
Land Loans – 9 Types
Land loans can be more difficult to obtain since they differ from conventional mortgages, but you still have options. Here are some possible financing options for your piece of land.
1. Bank or credit union loan
2. Government land loan programs
3. Home equity loan
4. HELOC
5. USDA loan
6. SBA loan
7. Personal loan
8. Buying a teardown
SouthStar Bank Land Loans
Our lenders specialize in land/lot loans and will help you secure your chosen site until you’re ready to build.
But we don’t stop there! We offer construction loans and construction-to-permanent loans to help you build your home. We make it smooth and easy to move through each stage of the custom home building process.
Ready to get started? If your down payment is lined up and your credit is in great shape, talk to us. We’re excited to help you secure the lot of your dreams.
