Land Loans
Buying land is different from buying a house. Things that are not usually discussed during a home purchase are extremely important in a land purchase -- such as:
- Access
- Utilities
- Easements
- Land-use restrictions
Land for sale falls into one of two categories:
- Raw land: Usually larger, subdividable parcels which have little or no infrastructure added (such as sewers, utilities, streets, or structures).
- Approved Building Lot: Non-subdividable building lot which is zoned for that particular use where the infrastructure is available and a building permit is readily obtainable. If the lot you are considering is not an approved subdivision lot, keep in mind that the first person to move into that area is often responsible for installing infrastructure. Subdivision lots can be purchased from a land developer.
Once you've narrowed down your search, spend a day at the local planning and zoning department and learn all you can about the property in which you're interested. How much control would you have over its use? (In some case, you may not even be able to build on it.) On the other hand, you should also be concerned if there are no restrictions at all.
Also, look at the county's long-range land-use plan. How accessible or desirable will your land be in 10 years?
Financing your land purchase with a LAND LOAN
Land loans, as the name suggests, are loans made to individuals for the purpose of purchasing real estate which is land-only. Lenders consider land loans to be riskier than other types of property loans for good reason:
- A local Planning Board could thwart your plans to develop a property and make make it much less valuable.
- Because the collateral -- the property -- isn't currently being used, its owner could more easily walk away from the loan obligation.
Land loans usually require a more qualified borrower than other loan programs. You should plan on:
- Having a good credit rating
- A higher interest rate
- A larger down-payment
The exact terms of your financing will depend upon the property itself: Raw land is the hardest type of property to secure a loan on, because lenders will consider it to be a speculative investment.
The loan terms will also depend upon what you plan on doing with the land. It will be easier to get a loan for improved property like a building lot, especially if you have immediate plans for construction.
Generally, the lender has to understand the story behind the property -- and your plans for it -- before he will offer you specific loan terms. Also, a lender who is familiar with the area may be more willing and able to help you obtain the most favorable financing.
Other financing options:
REFINANCING: In some cases, leveraging the equity in your existing home may be a better option than obtaining a land loan. You can do this by:
- a home equity loan or
- refinancing with cash-out
Since your current home secures these loans, interest rates should be lower than those for a land loan.
CONSTRUCTION LOANS: Most people who are purchasing land aren't buying it for long-term investment: instead, they intend to build a home on it within a certain timeline. If you purchase the land with a construction loan, you can save on not have to pay separate land loan closing costs.
We have originated more than 1/2 billion of dollars of real estate to thousands of NH property owners and are happy to share our experience and expertise with you.
If you have questions about purchasing and financing land, call Charley Farley at (603) 471-9300 or e-mail charley@charleyfarleyhomeloans.com.
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