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Financing Land Only
Could I finance land only? A site-built home or mobile home would come later after I’ve paid off the land. Are down payments on land higher? Are credit restrictions tougher?
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Financing Land Only: Key Points for Consideration
Yes, it is possible to finance land only, but there are various crucial aspects to bear in mind:
Different Categories of Land Loans
Raw Land Loans—These loans are designed to finance developed lands lacking basic amenities and infrastructure. They attract relatively higher interest rates from lenders and require a larger, riskier down payment.
Improved Land Loans—These loans are for land with amenities and basic infrastructural facilities already in place. The terms of these loans are comparatively better than those for improved land loans.
Prepayments
Higher Prepayments—Compared to residential mortgages, down payments for land loans are generally large. The type of lender and the type of land determine the down payment percentage, which is generally 20% to 50%.
Financing Restrictions
Stricter Financing Regulations—Lenders may have to impose strict financing requirements for land loans. Since land is a risky investment, especially undeveloped land, it is reasonable for lenders to require a higher credit score and check for a more comprehensive financial history.
Return Rates
Return rates are easily higher. Interest rate returns are higher for land loans because they involve greater risk than home loans.
Loan Term Length
Shorter Loan Terms: If looking for a land loan, you will be able to borrow only for a period between 3 and 15 years, which is less than standard land loans
Future Financing for Home Construction
Construction Financing: You will want to erect a mobile home on the site-built house and thus need a construction loan. It’s one of the things that should be considered as you draw up your financial plan.
This type of venture is aimed at those wishing to construct a house in the future. Such loans, which do not provide land only, would require larger deposits and higher credit scores than standard mortgages. For those would-be borrowers, they will be looking for lenders offering land-only loans. Speaking with a mortgage loan officer or adviser who could recommend the right undertaking may also be useful. Do not hesitate to reach out with any questions!