There are numerous loan programs available for the purchase of vacant land – otherwise referred to as “lot loans.” These loans are underwritten in the same manner as a loan for developed land and you will need standard income and credit documentation that is required in any real estate transaction. Most lenders will also require a minimum down payment of 30% since lending upon vacant land is considered a slightly higher risk.
If you decide to buy a piece of vacant land with the intentions of building your own home you can typically find a lender that will do a “construction to permanent” loan. What this means quite simply is they will lend you the money necessary to purchase the land and then they will finance the construction of your project until it is completed. This has several advantages: you sign only one set of loan documents and do not have to worry about re-qualifying, re-appraisals, additional closing costs or signing additional loan documents. In addition, you will likely have the opportunity to lock in an interest rate based on today’s market rather than waiting until the project is complete.
If you decide to apply for a construction loan, you will be required to provide some addition information in order to assist the appraiser and the lender in determining the value of the home after it is built:
· What is going to be built or constructed?
· What materials are going to be used?
· How much will the material cost?
· How much is the actual work going to cost?
· How much did the land cost, what is it worth today?
· How much will be spent on plans and permits?
The lender will also want to know about your choice of general contractor who will be awarded the contract and the actual text of the construction contract. They will likely want a copy of the contractor’s resume and a copy of their credit report in order to ensure that he/she is experienced, has a proven tract record, and will be able to perform under the terms of the contract. Some lenders have a copy of a construction contract that they want you to use and others just require a copy of the one of your choice.
If you are looking to buy vacant land or would like to obtain a construction loan, please fill out the PickYourOwnRate.com form and an experienced mortgage professional in your area will contact you promptly.
Please use the resources available on this website to help you make an informed decision and if you have any questions along the way make sure to use the “Ask An Expert” feature.
