You’d like to finance your new lot of land, but as you’re well aware, you can’t grow money. There aren’t seeds for that kind of crop. You need a practical way to secure funding, and it isn’t always straightforward if you’re unfamiliar with the process.

In this article, we’ll detail everything you need to know, touching on land loans, meeting with lenders and other helpful tips to guide you in the right direction. You’ll find financing is relatively straightforward once you understand it a little better.

Different Types of Land Loans

The typical mortgage lender isn’t likely to finance your purchase, and in many cases, you’ll need to apply for a land loan. These are a type of credit you can use to purchase a vacant lot you’d like to build a home on or raw land you don’t intend to develop. To clarify, that doesn’t exclude the purchase of farmland.

You have many options to choose from, and we’ll describe three.

1. Lender Land Loans

You should turn to community banks and credit unions when searching for a land loan, looking for a lender that’s near the land you’d like to purchase. They’ll have a better grasp of its value and potential. The down payment might prove expensive, but local lenders usually offer longer repayment terms.

2. SBA 504 Loan

If you don’t intend to build a home, but instead to use the property for commercial enterprise, you might qualify for a 504 loan through the U.S. Small Business Administration. These loans come with a 10- to 20-year repayment period with varying interest rates based on the current market.

3. Seller Financing

The person or company selling the land might offer short-term financing, but you’ll usually have to settle for higher interest rates, a high down payment, and a short repayment term. This option is something you should only consider if you don’t qualify for any other kind of land loan.

As you review different types of loans, you should begin to develop a plan.

Presenting Facts and Figures

Land loans are riskier for lenders than mortgage loans, and they’ll want to know what your plans for the property are. They’re far more willing to finance your purchase when you can present a plan that thoroughly details your intentions. In other words, they want to see the value you’ll add to the property.

For example, if you’re using your new lot to build a house, you could pursue a construction loan. It’ll allow you to cover the cost of land and construction, from the start of the project to its completion. But like we just touched on, you’ll have to show facts and figures, proving you’re prepared for what the process entails.

You also need a minimum credit score of 680 as evidence of your financial stability and responsible credit management. As you organize your information, make sure to collect these relevant numbers, because you’ll have to produce them later. Take a proactive approach to the process to save yourself time.

We’ll now move on to a few tips you should keep in mind as you continue.

Helpful Tips to Remember

Contact a professional to survey the lot of land before you buy. The features you assume show the boundary of a property — like its fence lines and markers — might not provide an accurate representation of its size. Verification will ensure you get what you’re expecting.

You should also check for any processing fees, origination fees, credit check costs, appraisal fees, and other expenses. These closing costs can add up, even if you’re buying a relatively inexpensive property.

There’s more you should know, while we’re on the subject of budgeting. After you’ve purchased the land, you’ll likely have to cover additional expenses you may not have considered. These include necessities like upkeep, associated municipal and county taxes, potential permit fees and other costs you should make room for.

And there you have it!

Finance Your New Lot of Land

If you need any clarification, do a little extra research on how to finance your new lot of land. You have multiple options, and any of them can help you secure funding for a piece of property. As long as you follow some of the suggestions above, you’ll find the process is simple.