Taking out a Loan to Buy Land

A land loan allows the borrower to buy a plot of land and build a home in the future. As a rule, the interest rate and down payment are higher than for conventional mortgages.

Financing for unimproved real estate is largely a local marketplace. This is unlike mortgages where competition is intense, with different financial institutions offering loans. Financing often comes from the seller, and the terms and interest rate are negotiable. A 20 percent down payment is usually required, and the seller holds a note for the balance. Another option is to apply for a home equity loan, especially if the sales price is not high. The mainstream financial institutions are not big players when it comes to buying land; so, you may want to look for financing from a community bank. The title insurance companies and real estate agents in your area should know which financial establishments offer loans for land.

As a rule, you will have a better chance of getting approved if you plan on building a personal residence, there are improved properties nearby, and you make it clear that you will apply for a construction loan as well. If you plan to build in three months, you can do a 90-day note. In this way, the amount due will be rolled into a construction loan, and you will pay interest only.

It should be noted that different factors impact the terms and conditions, including the intended use, the zoning, and the size and location of the parcel. Some banks charge the same points and interest rate for the purchase of row land and for construction. The loan can be interest-only or amortized over a pre-agreed term. This depends on the borrower’s financial circumstances and needs.
Financing is usually offered to self-employed and salaried people who seek to buy a residential plot of land. Some financial institutions require that the property to be financed is within municipality limits. Loans are mainly offered for the purchase of residential and not agricultural land. Furthermore, some financial institutions require that the borrower begins construction within a specified period of time, which can be from 6 months to 1 year. For more information go to http://www.yourloan.ca/