Land Loans: What You Need to Know
You’ve finally found the perfect piece of country and you’re ready to invest! But if you don’t have cash in hand, how do you pay for it? Since buying rural land rarely involves a conventional property mortgage, a land loan may be your best bet. If you are in the market for land, it’s vital to explore all your financing options. The variety of financing options for land loans enable you to avoid debt and financial ruin by securing the right loan for your specific buying situation.
Backwoods Land Co. experts have been in the land business for years and we’ve seen it all! As part of the land purchasing process we can recommend to our valued clients who to contact for financing options to better help secure your own rural paradise. We’ve learned that when traditional mortgages don’t apply, the best options typically include government land loans or private land loans to finance your land purchase. The world is your oyster when it comes to land loan options, but you’ll need to do a little research before picking one.
Private Land Loan Options
A land loan is an excellent way for land buyers to get into the game, whether you’re an old pro or a first-time buyer!
Buying Land with Seller Financing
If the land you’re looking at has been on the market for a while without selling, the current landowner may decide to offer seller financing for it. This occurs when a seller takes the loan responsibility and you pay the seller directly. In that case, the seller determines the terms of the loan and what you have to do in order to qualify for purchasing and financing the land. It’s vital to have a legal team review the agreement to make sure everything is accounted for and done fairly and correctly. Also, be aware that the seller may decide to sell the promissory note to an investor at any point, in which case you would make payments to the new investor.
Unsecured Personal Loans for Land Purchases
Another type of land loan you may qualify for depending on your circumstances are unsecured personal loans. These loans are ideal for less expensive land lots and will have a shorter repayment period with higher interest rates. If you’ve found your sweet spot and don’t want to miss it, this may be the option for you!
Home Equity Loans for Land
If you are not a first time buyer and already own a home, you may be able to use a home equity loan to finance land. This means you’ll be able to borrow on your existing equity (which basically is the difference between your current home’s value and how much you still owe on it). In many cases, you’ll be able to borrow 20% of your equity. This may also include loans against land owned or you may also be able to borrow money on land owned. The benefits of a home equity loan for land is that you’ll most likely have a lower interest rate (the lender figures if you default, they’ll be able to sell your home easier than they will be able to sell land alone).
Bank Loans for Buying Land
While bank loans for rural land purchases are less likely than for traditional homes, there are still bank loans available for buying land. You may want to search nearby for banks that finance land only so that you’ve explored all your options. The types of bank loans for buying land include several options.
Raw Land Loans
Raw land financing may be provided for properties that are completely undeveloped. You’re purchasing the land itself and that’s it! You may want to search for vacant land loan lenders nearby or raw land loans Mississippi (for example) to see if they’ll finance your land purchase.
Unimproved Land Financing
Unimproved land loans are in place for those properties that have some utilities up and running, or at least accessible but which are mainly still undeveloped
Improved Property Loans
Improved land loans are offered for land which has utilites completely accessible, ready to tie into or already established onsite.
Interest rates are higher for bank land investors because the more undeveloped your property is, the riskier it becomes. However this doesn’t mean you should give up! You can find opportunities with small banks who will be much more open to lending money than other major lenders like a bank or credit union may be willing to do.
Government Land Loan Options
There are a few types of government land loans for you to consider, if your purpose for buying land meets the criteria.
Construction Loans for Land
If you’re planning on building on your rural land, you may want to consider a construction loan. This would help you purchase the land as well as any residential structure you’d build. Construction loans typically require a downpayment of 20%. There are two types of construction loans available once your land has been deemed suitable for construction.
- Construction to Permanent Loans: Your USDA construction loan would begin as an interest-only construction loan while you’re building and transition to a traditional home loan after (principal + interest).
- Stand Alone Construction Loans: This loan structure involves two loans, one for the building process and one for the home mortgage. The downside to this option is going through the approval process twice and paying closing costs.
FSA Loans for Land Purchase
If you’re purchasing rural land for first-time or small farming or ranching, you may be able to qualify for a low-interest FSA loan. These are offered through USDA Farm Service Agency’s Farm Loan Program and are a fantastic option for the new farmers and ranchers of America.
Grants for Land Purchase
One other possible land financing area to consider is private, federal, or state grants for land purchase. While these aren’t actually loans, you may be eligible for some grant money if you’re considering improvements and agriculture, land conservation, or the likes.
Buying Rural Land in Mississippi
So you want to buy land? It’s not for the faint of heart. You need to be careful and consider your options: do you have enough money saved up, can you afford higher interest rates if they come along with a lower down payment, what are you using the land for? Which land financing options are the best for you? Make sure to shop around and spend some time researching all available lenders and land loan types before getting in too deep. Use these helpful hints from Backwoods Land to get you started!