Land Loan Information

Individuals who would like to buy land usually need to apply for a loan in order to help them with their purchase as buying land can be incredibly expensive. These loans are known as a land loan and differ quite significantly from many other types of loans that are currently available. These loans are specifically for purchasing an area of land without anything built on it which means they do not provide any instant equity for a lender nor provide income such as potential rental.

In order to be approved for a land loan the person taking out the loan must be able to prove to the lender that their future plans are likely to increase the value of the land they are purchasing. For example if a person is planning on developing the land they have purchased it will be seen as less of a risk than someone who intends to leave the land in its current state. This is due to the fact that land that has not been developed is much easier for an owner to leave when compared to land that has been developed and therefore has more equity in it.

So for example if a person was purchasing an area of land as an investment only the lender would consider this to be riskier than someone planning to construct a house.

Another aspect of applying for a land loan that a borrower should be aware of is that they will need to provide a down payment towards the cost of the land that they are purchasing. In the majority of cases this amount will be between 5% & 10% of the total cost of the land that is being sold, but depending on the risk factors involved this can go as high as 20%. Borrowers who have already have a home loan will find that the down payment they have to provide is often less than someone who is taking out this kind of loan for the first time. This is due to the fact that they can use their existing land as equity when taking out the loan which could benefit them.