A Quick Guide to Buying Land Part 4

How will you purchase the land?

Not all lenders handle vacant land loans, so it may be a bit of a challenge to finance your purchase

The owners of raw land — which is land without any utilities, sewers, or streets — may offer seller financing when they’re selling it. If not, try local banks or credit unions.

People can buy raw land with no intention of building on it. Raw land lenders set their own qualifications and LTV guidelines that establish the level of risk they’re willing to assume on a particular loan. Higher risk loans tend to come with higher interest rates. But if you’re buying land with the intention to build on it, there are a few things to keep in mind:

Buying land to build a home

If you intend to buy land and then build a home on it or buy a modular/manufactured home, it’s best to determine if you can qualify for a construction-to-permanent loan first. Once the home is near completion, you can start searching for a traditional mortgage to refinance your construction loan.

If you’re seeking financing in this way, consider the costs involved in developing the land when applying for a loan. The costs can include tree removal, grading, drainage and creating an access road, as well as bringing utilities to the site and building a structure. Get bids or estimates for all the work required before seeking financing so you’ll know how much you need and what type of financing to apply for.

Buying land with utilities

If you‘re buying a piece of land that already has utilities on it, and plan to live on it in an RV or tiny home, the financing is likely to be straightforward. But if you’re planning to build, you may be required to have building plans in hand in order to apply for a construction-to-permanent (CP) or combined construction loan to finance the purchase of the land and the building of your home.

Buying land with cash

If you’re paying cash for the land, it may be possible to obtain a construction loan later to build on the land using your equity in the land as a down payment.

As you can see, buying land has a lot of similarities to the process of buying an existing home, but requires an extra level of diligence to make sure you’re buying the right land for your dreams. It is really important to find a lender or advisor you trust and who can help guide you through all of the intricacies of the financing process for vacant land, especially if multiple loan products are necessary to achieve your goals. 

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