Building a new house can be attractive because of the low maintenance level that is required in the first few years. Unfortunately, it also introduces an obstacle: get land financing. Here are some factors that you should consider before buying land.
First of all, it is important to be clear about what the potential purchase involves. That is why it is vital that the boundaries are indicated by surveyors and that everything on paper is ready to be presented to the lender. Another important detail is checking zoning plans and land use restrictions.
For residential plots, access to facilities is a major factor. With water, sewerage, electricity and cable connections ready for use, you save a lot of time, money and hassle. Similarly, access to the public highway can be an important issue, as the buyer must have a permanent service to gain access to a public highway if it is not yet available.
It is also wise to check with the local planning department what the future holds for the immediate environment. A new park further down the street can benefit the value of real estate in the coming years, while a new highway or sewage treatment plant will do so less quickly.
2. Use of the Land
The conditions of the loans, such as prepayment and interest rate, are usually related to the intended use of the land, as this is directly related to the bank’s risk exposure. In this way, obtaining land loans is always more difficult than buying an existing house, because an existing house gives the bank immediate, tangible collateral, while new buildings have more moving parts that can go wrong.
Of the existing houses, the next step on the bank’s trust ladder is to buy a ready-to-build plot with the intention of immediately starting the construction of a primary home. Things can go wrong, cause delays or increase costs, but the schedule is still manageable in the eyes of the bank. The down payment is usually in the range of 10 to 20%.
Unrealized lottery tickets are the ones that do not yet have the required basic services and for which utilities still have to be established. It often happens that unforeseen problems and cost overruns are encountered, which means that months are added to the timeline.
Finally, there is also unprocessed land without specific plans to build something, which is in fact a speculative investment. A project in this spirit may, for example, be buying land awaiting the completion of a new highway nearby. The hope would be that when the highway is completed, the land would be attractive for a developer to build a new, trendy subdivision with a convenient trip to the city. The land can then be sold for a decent profit to the developer. These loans can require a down payment of up to 50%.
3. Loan options
Seller financing can be a good option to get favorable terms, especially if the seller wants to unload the land and the market is cool. Since this is an agreement between two citizens, everything is negotiable, from down payments to interest rates. It is important to have the papers reviewed by a legal adviser before signing anything to avoid gaps and unpleasant surprises for both parties.
Local banks and credit unions generally look more favorable on loans to land than the large colossi. They can also offer better conditions because of their local knowledge of the property. In any case, a potential borrower will have to present a loan package with specifications and plans for the country, as well as persoLemminkäinenijke financial information to prove creditworthiness.
A buyer with an existing property and a small debt may consider considering a loan with equity. This type of loan ticks the equity of the existing real estate, making it much better conditions than any regular construction or land loan.
How can buyers buy land if the banks and credit unions do not offer the financing? If the property is national and agricultural, the buyer can receive federal support. The USDA offers a range of subsidized loans with minimum requirements and advantageous conditions.