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Real Estate Investing

Everything You Need to Know About Land Loans

Thinking about building a custom home? If you can’t find the house of your dreams, building your home can be ideal.  All you have to do is finance the process. Fortunately, you don’t have to have a pile of money in the bank to do just that. Instead, you can take out a land loan. Land Loan: What is it? A land loan, also known as a lot loan, is used to fund the acquisition of a piece of land. If you’re interested in purchasing land on which to build a house or other structure, you can get a land loan. The type of loan you choose will depend on where you want to acquire land and how you’ll use it. Land or lot loans are also a preferable option for potential home builders who have a concept but who might not want to start building and financing a house immediately. If you are worried that your construction has to be delayed or if you’re still finalizing your home plans, then a land loan is probably the best option for you. How Do Land Loans Work? You’ll typically need a down payment of at least 25% to take out a land loan. You’ll need a credit score of 720 or higher to take out a land loan. You may also need to provide your lender with information about how you intend to use the land. This often means conducting due diligence in regard to the property’s existing zoning, land-use limitations, surveyed boundaries, and existing utility access. This information will help lenders assess the potential risk of the loan. Lenders adjust interest rates in response to these factors, but regardless, you should expect higher interest rates than you’d see from a traditional mortgage. This is because a land loan is riskier for the lender than a mortgage. However, if a borrower has superior credit and a lower debt-to-income ratio, they may be eligible for lower rates. Once the borrower has been approved by a lender and accepted the loan’s terms, they will be responsible for making a down payment and repaying the loan at the decided interest rate. In addition, land loans typically have shorter repayment terms than traditional home loans. Terms typically range from 12 months to 3 years. Another option for borrowers, is to convert the land loan into a conventional mortgage after the building of your new home is finished. This will allow them the chance to get a fresh principal balance and a cheaper interest rate through refinancing. Converting Loans A land loan lets you secure a piece of land until you’re ready to build. You’ll only have to pay for the costs of holding the land itself. When you’re ready to start building, you’ll want to convert the land loan to a construction loan. This loan is a 12 to 18 month loan. Your land loan will roll into your construction loan, and the down payment you used on your land loan will be applied to […]

IRA Non-Recourse Loans – Get Started with Us Today

IRA Non-Recourse Loans | SouthStar Bank Consider the following scenario: You want to buy real estate using your self-directed IRA. The non-recourse loan is applied for by your IRA or retirement plan and the debt is secured by real estate.   Some of your IRA money and the non-recourse loan are used to purchase the property, leaving the rest of your IRA funds invested and earning interest. For example, let’s say you find an investment property for $200,000 and have $200,000 in your IRA. You don’t use all the money in your IRA, but maybe $100,000, then you can get a non-recourse loan in the name of the self-directed IRA to make up the difference. Your IRA now has $100,000 in it, which is earning interest and growing. These loans are often utilized to provide you with additional funds in the event that your property requires repairs or upgrades, or to invest in commercial real estate. Taking out a non-recourse loan allows you to diversify your investing portfolio rather than putting all of your eggs in one basket. It’s a huge win for you and your retirement account. By leveraging the bank’s money, non-recourse lending enhances your IRA. Furthermore, the IRA’s money is safeguarded and can be used for other investments. How Do Non-Recourse Loans Work? When you have a small IRA or just don’t have enough funds to invest in real estate, your IRA can get a non-recourse mortgage loan. The non-recourse loan is a loan in the name of the IRA, secured by collateral (usually the property being purchased). The loan is based on the value of the real estate investment and in most situations, the IRA holder’s credit does not play a role in the IRA’s eligibility. Borrow What You Need There is no minimum or maximum loan amount at SouthStar Bank. The loan is in your IRA’s name and the amount you can borrow is determined by the value of your real estate investment. SouthStar Bank offers non-recourse IRA loans for single-family houses and condominiums (2-4 units). Keep in mind that the property’s net operational income/cash flow must be sufficient to cover loan payments. A percentage of the purchase price must be vested in a self-directed IRA for eligible borrowers. Your non-recourse IRA loan down payment will be determined by the property you buy, its condition and estimated cash flow. A 40 percent down payment is usually required by SouthStar Bank. Non-Recourse Loan Benefits A non-recourse loan, as mentioned above, is a form of loan that you can take out using your IRA to buy real estate investments. Your IRA owns these loans, which are subject to UDFI (unrelated debt-financed income) and must be returned through your IRA. Non-recourse loans have other advantages than helping you finance your real estate venture. Your IRA, not you, is responsible for your loan When you open a non-recourse loan, your IRA owns it, not you, which means that you will not be held personally liable should anything happen over […]

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