All a Buyer Needs to Know About Land Loans – Part II

Land loans are used to purchase land without a house on it.

In Part II of our series, we’ll further expand on the fundamentals of land loans:

Pros and cons of land loans
You made your land purchase — now what?

Pros and cons of land loans

Pros

You can build your dream home from the ground up. Purchasing land gives you the opportunity to start from zero and build a brand-new home that is precisely as you want it.

Develop at your own pace. If you pick a raw land loan, you can postpone building on the property until you are ready to move forward. Our loan terms for lot loans are 3 to 12 years, giving you plenty of time to obtain house plans and to finalize the plans and budget with the builder.

At that point, you can secure a construction loan.

Options with a single closure simplify construction. Construction loans have the benefit of financing your land purchase and the cost of new construction, transforming into a conventional mortgage when you’re ready to move in. This is useful if you’re ready to start building. Since you’ll just close once, the procedure will be simpler.

Cons

It might be harder to market raw land. Purchasing land can carry greater risk than purchasing a home, particularly if the economy isn’t doing well.

Land does not increase in value in the same manner as renovated property. Land is harder to sell than upgraded property when economies go “soft.”

Land may not be buildable. If you intend to construct a home in the future, especially if you’re purchasing unimproved land, you must confirm that the property can support a home. Do your due diligence! You’ll want to confirm road access, utility hookups, zoning requirements, and more.

You’ll face tougher qualifying criteria. A land loan can be more difficult to obtain than a conventional mortgage. Historically, borrowers looking to qualify for a land loan have needed to provide evidence of improved credit and make a larger down payment.

You made your land purchase — now what?

After purchasing the land, you can now begin making plans for what you want to construct there. Whether you’re building a house for yourself or a business, there are many different ways to fund the project.

SouthStar Bank offers several of the most popular methods for financing a construction project, including:

→ Construction-to-permanent loan. As soon as you move in, the loan transforms into a conventional mortgage. Money is disbursed as construction advances.

→ Construction-only loan. Similar to a construction-to-permanent loan, these loans cover the cost of building the house as it is being built. However, it won’t change into a conventional mortgage. At the conclusion of construction, the remaining sum must be paid in full, or you must refinance to a new loan that repays the construction loan.

→ FHA construction loan. These loans provide a one-time close construction-to-permanent loan and are supported by the Federal Housing Administration. With a credit score as low as 500, you may be eligible.

→ VA construction loan. The Veterans Administration allows qualified military service members or veterans to finance a home construction project using a VA loan. This is also a one-time close loan.

→ Owner/builder loan. You might be interested in supervising the construction of your home yourself if you dare to be a general contractor. Some lenders provide loans for owner-builder projects, in which the homeowner also oversees construction.

→ Hard money loan. A hard money loan could be used to finance your construction if you lack many regular financing sources. Although the property is used as security for these loans, they typically have greater down payments and interest rates than other options.

Get Help Today

Building your own home is a time-honored Texas tradition. We’re proud to help Texans realize this dream.

Speak to one of our loan office rs to get help with your loan today!

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.

Welcome Jean Ann McCarthy

Jean Ann McCarthy, Personal Banker & Proof Operator | SouthStar Bank Moulton

Jean Ann McCarthy joins SouthStar Bank Moulton as a Personal Banker and Proof Operator. Recently retired from education, Jean Ann holds an Accounting degree from Texas State University and has more than two decades of experience in finance. She is looking forward to bringing her financial background to the banking industry, making a difference in her coworkers’ and customers lives, and joining the supportive team environment at SouthStar Bank.

In her free time, Jean Ann enjoys spending time with her family, cooking, reading, and baking. She also enjoys traveling with her two favorite places being, La Jolla, California, and the Disney Parks, where she has made countless memories with friends and family. However, she enjoys visiting any location as long as she has a good book, a fruity beverage, and her family in tow.

Welcome to the SouthStar Bank team, Jean Ann!

Welcome Bianca Howle

Bianca Howle, Assistant Vice President & Branch Manager | SouthStar Bank Steiner Ranch

Bianca Howle joins SouthStar Bank Steiner Ranch as an Assistant Vice President and Branch Manager. Bianca is an alumna of Louisiana State University and brings more than two decades of banking experience. As Branch Manager, she is excited to bring her passion for community outreach and her ability to help cultivate her staff into strong leaders. One of her most significant professional achievements was creating and leading a leadership class for entry-level supervisors to teach them how to lead effectively.

Outside of work, Bianca can be found golfing with her husband or curled up with a good book. She also loves to travel, and her favorite destination thus far is Africa. One interesting fact about Bianca is that she majored in Opera while at college.

Welcome Maggie Womack

Maggie Womack, Personal Banker | SouthStar Bank Southwest Austin

Maggie Womack joins the SouthStar Bank Southwest Austin team as a Personal Banker. Maggie recently graduated from Texas State University in May of 2024 with a major in Advertising and a minor in Business Administration. She is excited to bring her welcoming personality to her new position and hopes to create meaningful connections with her customers.

One of Maggie’s most significant personal achievements was winning the Silver Addy Award in the San Antonio Advertising Competition. Her winning campaign was the first she had ever created by herself, and she was delighted to see her hard work pay off.

Maggie enjoys spending her free time with her dog, whether it’s going on walks, learning new tricks, or just cuddling on the couch. Her favorite place to travel is her grandfather’s ranch, where she gets to see chickens, horses, and longhorns roam the property.

Welcome to the team, Maggie!

Congratulations Brianna Tirado! New Branch Manager

Brianna Tirado has been promoted from Personal Banker to Assistant Vice President and Branch Manager of the SouthStar Bank Gonzales branch. She has been with SouthStar Bank for three years, all at the Gonzales location.

In her new role, Brianna will be responsible for the retail operations of the branch from both a sales and service perspective. She looks forward to deepening her connection with the Gonzales community and expanding her banking knowledge to serve her customers best. She also looks forward to becoming more involved in community programs and organizations in her expanded role.

Outside of work, Brianna can be found in the outdoors, spending time with her family, or watching her favorite football teams, the Houston Texans and Kansas City Chiefs.