When most people look to buy a new home or set up a business, they look for a residential or commercial loan on a completed property. But there are a lot of great reasons to think about purchasing vacant land instead, so you can construct your own home or commercial structure. Doing so gives you a much higher level of control, and in some cases, it can save you money.
Because not as many people go this route however, there are not as many resources devoted to the topic. You probably have a lot of questions about shopping for vacant land and choosing a loan. Following are some important considerations to keep in mind before you select a lot or apply for financing.
1. First, know what kind of utilities and access you need.
Location is probably the first thing you think about when you look for a plot of land. The geography as well as the cost are also factors which are likely very high on your list. Choosing the right land to buy also entails other considerations however.
First, think about access. If there is no access to public roads currently in place, you will need to devise a solution, which could entail easement—a significant complication. Secondly, most structures require utilities such as water, electricity and septic systems. You might also need cable as well. Are hookups ready to go, or do they need to be installed?
Finally, do not forget that zoning requirements can be quite complex. The last thing you want to do is purchase a plot of land believing that you can use it for your planned purpose, only to discover it falls under a restriction. Even if you are good to go with the zoning regulations, you may be held back by ordinances and covenants. Investigate those as well before you move forward with the purchase.
2. Make sure you get the land surveyed.
When you find a piece of land that you like, your next step is to call in a professional surveyor. This is a little like getting a home inspection, except the land is what is being inspected. The surveyor will need to mark the boundaries and prepare documentation for you to use during the loan application process.
3. Watch out for hazards.
There are a lot of reasons why a certain plot of land might be a low-cost buy. Land which is remote, or which does not have utilities set up may be available for a low price. Land which is hazardous can also be snagged at a discount.
What types of hazards do you need to watch out for? For starters, you need to think about flooding. If you try to build on a floodplain, you are taking a risk. This not only may put the structure itself in danger but may also result in a pricier loan and more expensive insurance requirements. Other potential geographical hazards could include landslides, active geological turf, and so forth.
4. Try and have a plan for the land already in mind when you apply for the loan.
The more straightforward and immediate your intended construction project, the more likely it is to be funded with an affordable down payment, competitive interest, and favorable terms.
Projects which are speculative or ill-defined are less likely to result in loan approval. If you do get financing for the land, you can expect it to come with a hefty down payment (you might have to pay as much as 50% upfront, which naturally can be prohibitive if you need liquidity in your finances to pay for construction). Interest rates may also be significantly higher, and the terms of the loan may provide you with less flexibility.
So, if you do have a specific plan to build a home or a commercial building, get everything you can in writing, and be as concrete as possible. If you can, present a timetable for your entire project. If you have already contacted a construction company or other contractors, provide that information when you are applying for the loan. Offer up floor plans, estimates, and other paperwork if you have it. It may go a long way toward helping you to secure a competitive loan.
5. Be aware that you will need to apply for permits as well.
In order to legally build on the land you purchase, you will need to obtain permits from government authorities. You are going to need these not only for the actual structure you intend to erect, but also for the utilities you plan to install.
6. Apply for the right type of loan for your needs.
One vacant land loan may be quite different from another. You can for example apply for a lender land loan offered by a bank. While national banks may offer loans for lots, you will probably find it easier to work with a local lender. That way you are dealing with someone who might be familiar with the plot in question.
Other options are available as well in select cases. If the area is designated as “rural” by the US Department of Agriculture, you might be able to purchase the land through a USDA-backed rural residential loan. In business situations, you can check whether it is possible to obtain financing through an SBA 504 loan. If a seller is eager to part with a piece of land, it is also possible that they will finance the lot for you.
It is very important to shop around to find the best loan for your purposes. Whether your plans are commercial or residential in nature, being prepared and hunting for the best quote could potentially save you thousands of dollars.
Lending Bankers Mortgage Can Help You Apply for a Vacant Land Loan
Commercial loans are our specialty at Lending Bankers Mortgage, LLC, and we also have extensive experience with residential loans. As the region’s leading construction mortgage company, we connect customers with vacant land loans throughout South Florida. Our extensive network includes 130 lenders, so whatever your needs, we can help you find a competitive loan for the vacant land of your dreams. Please give us a call at (786) 220-1100 or email email@example.com to set up a consultation.