How Difficult Is It To Obtain Land Loans?
With more people renting than ever, it’s evident that buying a home is daunting.
Some may even consider obtaining raw land loans to build on a lot in lieu of buying a home.
But is buying land really worth it? How difficult is it to obtain a land loan?
Here’s what you should know before planning to get a land loan.
Loans for Land Aren’t as Common as Mortgage Loans
The percentage of prospective loan buyers is much lower than home buyers.
Because more people are looking for mortgage loans, not many lenders offer land loans. This makes your options really limited when buying land. (Unless you’re paying with cash!)
Land Is Hard to Sell
Buying land and building a home is a tough, time-consuming, and a lengthy process.
Most people looking to own a home are searching for existing homes to move into right away. Because of this, the market for land is not great. This makes land hard to sell because the demand isn’t there.
If you buy land to build a home and change your mind later, it might be hard to get the land off your hands.
Land Loans Are Riskier for Lenders
If for whatever reason, a borrower decides to abandon their land and stop paying, the lender has to try and sell the land.
Because the demand for land is low, a lender can predict that they will have trouble reselling a piece of land in foreclosure. This makes it risky for lenders.
As a result, lenders often charge higher interest rates and expect a more substantial downpayment. This is especially the case for land purchased with no intention to build. Higher interest rates help the lender account for any losses they might encounter from lending money for land.
Best Banks for Land Loans
Bigger banks won’t be your best bet when looking for a land loan.
Instead, you might have better luck with local credit unions. They have a better idea of the value of properties in their area because they know their customers may have an interest in them.
A U.S. Department of Agriculture loan is probably your best option. They offer a variety of loans depending on your intended projects. They also award grants for a myriad of reasons. While these loans don’t require a high income and come with low-interest rates, they have a very short repayment period.
This could result in higher monthly payments. If you are located in Canada and are interested in homeowning, you can learn more about Canadian homeownership here.
Buying a Home May Still Be a Better Option
If you’re financially stable and intend to build on raw land, you may have luck acquiring land loans.
For some, however, the interest rates and risk may be too high. In this case, it might be better to opt for a mortgage loan on an existing home.
If you are looking for a home in South Florida or want to learn about homeownership and improvement, Sky Five Properties has the information and services for you.