Land lenders, who provide loans for undeveloped land, usually impose higher interest rates and ask for larger down payments. Land mortgage lenders may be reluctant to provide loans for raw land because it is easier for borrowers to default and walk away if the if the collateral is a vacant plot of land.
Loans for land are more difficult to get because experienced builders and developers have to be involved. It may be easier for you to get a land loan if you use your existing home as collateral and get a home equity loan. This means that there will be a lower level of risk for the raw land lender, and you will be able to get a loan with a lower interest rate and down payment.
Most deals for raw land are arranged by land loan brokers, who guide land loan applicants and inform them about the deals being offered by different hard money land lenders. Brokers help loan applicants to find suitable lenders for land, and help them to complete the documentation.
A land lender will assess your capacity to repay the loan while processing your application. You may be asked to provide your business and personal balance sheets, along with tax returns, and credit scores. The land home mortgage amount and down payment may depend on the lender’s assessment of your ability to repay the land loan.
The assessed value or the purchase price of the plot of land may be taken into account by the land loan lender, and a loan to value (LTV) ratio will be applied to arrive at the loan value and down payment.
If you are not in a position to meet the down payment requirements, you can consider providing property in which you have equity as collateral. This could make it possible for you to get a land mortgage with little or no down payment.
It is best to research your options and to talk to several reputable raw land lender and brokers. Referrals can help you to find trustworthy service providers.
Ask a few land loan lenders / brokers to give you quotes in writing and take time to check their credentials and background.
You can negotiate a better deal by asking land loans lenders brokers if they will give you better offers than those provided by others. Use a mortgage calculator to assess the different options, and read the fine print carefully before you sign up.
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