Purchasing a piece of improved land to build your dream home on can be an exciting endeavor. However, financing the land purchase requires careful research to find the best improved land loan rates. As interest rates rise in 2023, it’s more important than ever to shop around and negotiate for the lowest rate possible.
What is Improved Land?
Improved land refers to a parcel of land that has been developed with basic utilities like electricity, water, sewer access and road access Improved land is “build ready”, meaning it has all necessary infrastructure in place so you can obtain permits to build a home on it. This is different from raw, undeveloped land which would not contain these improvements
Why Choose an Improved Land Loan?
An improved land loan allows you to finance the purchase of improved land specifically. The loan is secured using the land as collateral. Here are some of the top reasons to choose an improved land loan:
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Lower Down Payment – You may only need a 15-25% down payment on improved land, versus up to 35% on raw land
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Better Rates – Improved land may qualify for better interest rates than raw land loans.
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Shorter Terms – Land loans often have shorter 2-5 year repayment terms.
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One-Time Closing Costs – Construction loans let you close just once on the land and future construction.
Improved Land Loan Requirements
While easier to obtain than raw land loans, you’ll still need to meet stringent criteria to qualify for an improved land loan:
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Down payment – Typically 15-25% is required.
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Credit score – A minimum of 620, but scores of 700+ get better rates.
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Debt-to-income ratio – Your DTI needs to be below 43% in most cases.
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Loan purpose – Most lenders require you to build within a certain timeframe.
Where to Get the Best Improved Land Loan Rates
Take the time to shop around with multiple lenders to find the lowest rates on improved land loans. Here are some of the best places to look:
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Local banks and credit unions – These smaller community lenders are great options for land loans. Ask about their improved land loan products specifically.
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Farm Credit lenders – These institutions specialize in land lending, including improved farm land.
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Mortgage brokers – A broker can shop your case to multiple lenders and help you get the lowest rate.
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Online lenders – Be sure to compare rates from lenders like LendingTree and loanDepot as well.
How to Get the Lowest Rate on Your Loan
Follow these tips to ensure you get the very best improved land loan rate possible:
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Shop with multiple lenders – Compare offers from several banks, credit unions, farm lenders, brokers and online lenders.
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Ask for discounts – See if you qualify for a lower rate by setting up automatic payments from your bank account.
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Increase your credit score – Shoot for a score of at least 720 or higher to boost your chances at the lowest rates.
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Make a larger down payment – Putting down 20-25% can help you qualify for the best rates available.
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Lower your DTI – Reduce other monthly debts and housing costs so your DTI drops below 36%.
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Choose a shorter term – 2 or 3 year terms often have lower interest rates. Just be prepared for a balloon payment.
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Time it right – Consider waiting for dips in mortgage rates to start shopping for a land loan.
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Lock in the rate – Once you find the best rate, lock it in quickly before it can rise. Rates fluctuate daily.
Compare Offers and Negotiate the Rate
Once you apply and receive loan offers, it’s time to negotiate:
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Compare all loan estimates – Make sure you have offers from several lenders in writing first.
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Note higher rate offers – Reach back out to lenders with the highest rates first to see if they can beat the lowest offer you received.
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Ask lenders to match or beat – Specifically request that your top lender choice match or beat the rate you were quoted by another lender.
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Point out your strong financials – Emphasize your high credit score or substantial down payment when negotiating.
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Keep trying – Negotiate multiple times with each lender if needed to get the rate down.
When shopping and negotiating improved land loan rates, remember to always compare the Annual Percentage Rate (APR), not just the interest rate. The APR gives the full cost of the loan including fees.
Alternatives to Improved Land Loans
If you are having trouble qualifying for an improved land loan, here are a couple alternative financing options to consider:
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FHA land loan – FHA may finance improved land in certain cases.
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Seller financing – The seller carries the loan with installments paid directly to them.
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Home equity loan – Borrow against the equity in your current home.
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401k or IRA loan – Borrow against your retirement savings temporarily.
The Bottom Line
Finding the best improved land loan rate takes diligent research, comparison shopping, negotiation and impeccable financial credentials. But with the right approach, you can finance your dream property at a rate that fits your budget. Monitor land loan rate trends and pounce when rates dip to their lowest points.
Benefits of financing through AgSouth:
- Financing up to 20 years (15 years for lot loans)
- Competitive rates and terms
- Up to 85% financing (75% for lot loans)
- Lending staff specializing in land and timber financing
- Share in our profits
How to Buy Land: Learn the Financing Timeline and FAQ’s
This land loan calculator computes monthly payments & the total interest based on the purchase price, a minimum down payment of 15%, interest rate and number of monthly paymentsPurchase Price: Interest rate (%): Down payment
*This is an estimate of loan payment. Actual payment amount may vary depending on interest rate, closing date, and other factors.
How to Get a Land Loan (And What to Know Before You Do)
FAQ
What are current land loan rates in Texas?
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Term
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Rate
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APR*
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5 Year
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6.25%
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6.89%
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10 Year
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6.50%
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6.85%
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15 Year
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6.50%
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6.75%
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Minimum Loan Amount is $15,000 Required Down Payment is 20%
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What loan is best for land?
What is the interest rate on land loans in Georgia?
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Type of Loan
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APR*
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Estimated Monthly Payment Per $1,000
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Land Loans as low as
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8.99%
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$10.14 per $1,000
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How much do you have to put down on a land loan in Oklahoma?
Are improved land loans better than raw land loans?
Improved land loans are generally more favorable than raw land loans because improved land, which has access to roads and utilities, usually commands higher purchase prices but comes with smaller down payments and lower interest rates than comparatively riskier raw or unimproved land loans.
Is it a good idea to get a loan for improved land?
Improved land is the most developed type of land, which makes it more expensive to purchase. However, the interest rates and down payments for improved land loans are lower than for raw or unimproved land loans. Nonetheless, you still need to make a significant down payment and have a good credit score. Improved land is the most developed type of land, so it may be a good investment, but the specifics of the loan depend on individual circumstances. How Do Land Loans Work?
Are improved land loans risky?
Offsetting this drawback, however, are the comparatively lower interest rate and down payment requirements than you would expect for a raw land loan. Despite these slightly lower approval thresholds, improved land loans still pose an elevated level of risk for lenders.
Do land loans have higher interest rates?
Land loans may have higher interest rates or require a down payment as high as 50%. Mortgage banker Dave Krichmar explains, ‘Land loans are not a standard loan option, the terms are specific to the bank or lender doing it. They’re not like a 30-year mortgage with industry-standard interest rates.’ (Best Home Improvement Loans)