So, you’ve found the perfect spot for building your new home. But, you’re not quite ready to build. Now that you’ve found the location you want, what’s the best way to get a loan to secure that plot that’s taken your breath away? You have a few options. Of course, it comes down to where the lot is located and how you intend to use it. This is what you need to know to get the financing for your precious find.
Do You Need Home Loans to Buy a Plot of Land?
The simple answer is, no. Home loans, or mortgages, are for specific types of purchases. They involve a completed home that is “move-in” ready. When you’re talking about buying a piece of land to build on, you need something known as a land loan, or sometimes referred to as a lot loan. The specific type of land loan you’ll need varies depending on specific details about the land and how you intend to use it.
Different Types of Land Loans and Their Uses
There are essentially three different types of land loans available to would-be buyers. Each one has different strengths and weaknesses for specific situations:
- Raw land loans. These loans are for land that is completely undeveloped. There is no electricity, sewers, road access, or other utilities set up on the property. This is the riskiest investment, from a lender’s perspective, which makes it the most expensive of the three options.
- Unimproved land loans. These loans are for land that often has some amenities, such as utility line access, phone boxes and perhaps even road access, but not fully ready to build on. They may lack electric meters, natural gas meters or other essentials. Although not as difficult to obtain or as costly as raw land loans, these loans can still be more difficult to qualify for.
- Improved land loans. These plots of land have access to roads, electricity, water, and other utilities. They represent the least risk for lenders and while the price of the land may be higher than unimproved lots, the loan requirements, down payment, and interest rates are generally lower. You will need to have a solid credit score and a substantial down payment even for this land loan, however.
Now that you know what types of land loans are available, let’s explore what it takes to qualify.
Approval Process for Land Loans
While the individual qualifications vary slightly from one loan type to the next, you’ll need the following to qualify for a land loan with most lenders:
- Excellent credit. You’ll need a higher credit score to buy land than most mortgage lenders require to purchase homes because the risk with these types of loans is greater for lenders.
- Plans for the intended use of the land (for example to build a home, if that is how you intend to use your plot of land).
- Details about the property including information about zoning, land-use restrictions, surveyed boundaries and access to utilities.
Once you’ve been approved by a lender and agreed to the loan terms, it is up to you to make the down payment and repay the loan according to your agreement.
When you’ve found the perfect piece of land, Mid America Mortgage can help you get the lot loan you need to make that property your own. Find out which one might be the right choice for your situation by contacting Mid America Mortgage today. We’ll help you get one step closer to building your dream home!