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Owning land is part of the American dream. Whether you've always dreamed of being a landowner or came across a great deal on a property and just started considering the idea, at First Bank and Trust Company, we offer lot and land loans to help make your dream a reality.
Now is a great time to build, and our affordable financing and payment options offer the flexibility you need to become a landowner with ease.
A residential lot or land loan allows you to purchase the land you've always dreamed of. Our team is here to make the process as easy as possible so you can secure the proper loan for your purchase.
Both purchasing land and buying a home allow you to own a piece of property, but the financing process is a bit different. Here are some of the most significant differentiating factors between a land loan and a mortgage loan.
|
Home loan |
Land loan |
|
| Purpose | Purchase a home that is already built or is being developed by a construction company, usually in a neighborhood | Buy property with the goal of building a home or to hold onto the land |
| Rates | Rates are lower because there’s less risk involved because the home is used collateral | Interest rates are higher as there’s more risk involved because a home can't be used as collateral |
| Term | Your loan term usually ranges between 15-30 years to make owning your home more affordable | Your land loan is generally for a shorter period of time if the ultimate goal is to take out a traditional mortgage once construction is complete. Terms may be longer for non-residential land purchases. |
| Overall costs | Lenders often require private mortgage insurance if your down payment is less than 20%
Homeowners insurance is expected |
You don’t have to pay private mortgage insurance There is no property insurance requirement or expectation |
If you're considering purchasing land for your dream home or future investment, understanding the qualifications for a land loan is crucial. Here are the essential criteria to keep in mind:
Property Type: To qualify for a lot or land loan, the property must be vacant. It cannot be an operating farm or a commercial property. This ensures that the loan is tailored for the acquisition of residential or recreational land.
Land Characteristics: The land should have road frontage for easy access and must be equipped with access to utilities. These features contribute to the property's viability and accessibility.
Loan-to-Value (LTV) Limit: Land loans typically have a loan-to-value (LTV) limit, and in this case, it's capped at 80%. This means that the loan amount cannot exceed 80% of the appraised value of the land.
Loan Term: Land loans often come with shorter terms, usually ranging from 5 to 10 years. It's important to consider the term duration when planning your financing strategy for land acquisition.
Appraisal Requirements: For land loans, an appraisal specifically for the land is required. This appraisal assesses the value of the vacant property and helps determine the loan amount.
Tax Responsibilities: Borrowers are typically responsible for property taxes on the land. It's essential to factor in these tax obligations when budgeting for the land purchase.
Loan Size Limit: There is a maximum loan size for land loans, and in this case, it's generally set at $500,000. This limit helps define the scope of the loan and ensures that it aligns with your financial goals.
The difficulty or ease of your land loan process will depend on your financial status, your lender, and your plans for the land. If you plan to build on it soon, it will be easier to qualify for financing than if you plan to hold the property. The more stable your finances are, the easier it will be for your lender to help you qualify for the loan.
Typically, a land loan will require a down payment, similar to a traditional mortgage loan. The amount of your down payment can vary based on different factors, so it's best to get in touch with one of our mortgage expert for the details.
Like most loans, higher credit scores can often increase your chances of qualifying for a loan at lower rates and terms. To learn more about qualifications, get in touch with our team by calling 866-285-2239.