Navigating Land Loan Rates in Virginia: A 2023 Guide

Purchasing land to build a dream home is an exciting goal for many Virginia residents With beautiful mountain ranges, coastal areas, and fertile farmland, the state offers diverse properties to choose from However, financing raw land can be confusing, especially when it comes to land loan rates. This guide will explain current land loan rates in Virginia and provide tips for getting the best financing deal.

Overview of Land Loans

A land or lot loan is a loan used specifically to purchase vacant land. It allows you to buy property now and develop it later. Land loans are offered by banks, credit unions, farm credit institutions, and other lenders.

With a land loan the land itself serves as collateral for the loan. This differs from a construction loan which requires immediate plans to build and is collateralized by the completed home.

Land loans allow more flexibility in timing and budgeting your development plans. You can purchase land now at today’s rates, then get construction financing when you’re ready to start building.

Current Land Loan Rates in Virginia

Land loan rates in Virginia generally range from 3% to 10% as of January 2023, depending on the:

• Type of lender
• Loan program and terms
• Credit score and history of borrower
• Loan-to-value ratio

For example, rates from several Virginia land loan lenders include:

• Farm Credit of the Virginias – Fixed rates from 6% to 8% APR
• Atlantic Union Bank – Around 6% to 8% APR
• American National Bank – Up to 9% APR
• TD Bank – 5% to 10% range for land acquisition loans

Rates are impacted by Federal Reserve actions. A series of hikes in 2022 and 2023 have caused land loan rates to rise slightly compared to recent historic lows. But in general, land loan rates remain competitive in Virginia.

Factors That Influence Land Loan Rates

When shopping for a Virginia land loan, these key factors determine the interest rate offered:

Credit profile – Score, history, debt-to-income ratio. Borrowers with very good credit (720+ score) qualify for the lowest rates.

Loan term – Longer terms of 20 or 30 years have lower rates than short terms under 10 years.

Type of land – Raw, undeveloped land carries more risk for lenders than improved, ready-to-build lots.

Loan-to-Value (LTV) ratio – The loan amount compared to the land’s value. Lower LTVs have better rates.

Location – Land in rural areas often gets better rates than in hot real estate markets.

Lender type – Credit unions and farm lenders tend to offer better rates than banks.

Shopping around and comparing quotes from multiple lenders can help you find the most competitive rate for your situation.

Land Loan Rate Comparison Scenarios

To give an idea of current land loan rate ranges in Virginia, here are a few hypothetical rate quote scenarios:

Borrower 1

• 720 credit score
• Buying 5 acres of raw land for $125,000
• 20% down payment
• $100,000 loan amount
• 30-year repayment term

Rate Quotes:

• Farm Credit: 6.25% fixed
• Credit Union: 6.5% fixed
• Regional Bank: 7.75% fixed

Borrower 2

• 680 credit score
• Buying improved lot for $200,000
• 10% down payment
• $180,000 loan amount
• 15-year term

Rate Quotes:

• Online lender: 7.5% fixed
• Regional Bank: 8.25% fixed
• National Bank: 9.1% fixed

As shown, even borrowers with less ideal profiles can secure rates under 10% with the right lender. Shopping around is key to saving on interest costs.

Tips for Getting the Best Land Loan Rate

Follow these tips when applying for a competitive land loan rate in Virginia:

• Get pre-qualified – This shows lenders you are serious and allows them to provide accurate rate quotes.

• Ask about discounts – Many lenders offer rate reductions for automatic payment setup, existing banking relationships, or other factors.

• Make a sizable down payment – A 20% or more down payment results in a better LTV ratio and better rates.

• Verify the land value – Get an appraisal to confirm the market value and improve loan-to-value for better rates.

• Check local farm credit associations – They offer some of the lowest land loan rates in Virginia.

• Compare total costs – Consider rates, fees, and discount points to find the best overall deal.

• Improve your credit – A score over 740 can drastically reduce rates. Review credit reports and resolve any errors.

• Consider seller financing – If buying from a private seller, see if they will finance at favorable rates.

With current land loan rates in Virginia ranging from 3% to 10%, you have an opportunity to finance land at affordable rates. By shopping multiple lenders and improving your credit profile, you can secure competitive financing to start your land ownership journey in Virginia.

Pros and Cons of Land Loans

Before applying, weigh the advantages and potential drawbacks of land loans:

Pros

• Finance land purchases separately from construction
• Potentially lower rates than construction loans
• Build on your schedule without timeframe pressures
• Only pay interest on amount borrowed, not total project costs
• Lower qualifying standards than construction loans

Cons

• Total borrowing costs increase with two loans (land and later construction loan)
• Less flexibility to change plans once land bought
• Land can fall in value during ownership period
• Limited ability to deduct interest depending on how land will be used

Is Now a Good Time to Get a Land Loan?

Current land loan rates in Virginia have risen from recent historic lows but remain relatively affordable for buyers.

Factors to consider when deciding if now is the right time include:

• Your personal finances and credit standing
• Budget for down payment and construction costs
• Whether land values may rise substantially in near future
• Ability to manage carrying costs like property taxes
• Urgency of your development timeline

Meeting with lenders to discuss potential rate movements and your financial readiness can help determine if obtaining a land loan now makes sense or if you should wait.

Next Steps After Getting Land Loan Approval

Once you’ve secured financing, here are next steps to take:

• Review loan terms and covenants – Understand any conditions around development, use of the land, restrictions, etc.

• Inspect property boundaries – Visit the land and check boundary markers match the parcel survey.

• Pay down payment – Bring your down payment and closing costs to settlement.

• Complete settlement – Sign loan documents and land deed to finalize purchase.

• Make monthly payments – Set up auto-pay for land loan payments to avoid late fees.

• Explore development plans – Research building and zoning codes based on your plans for the land.

• Monitor value – Periodically review comps to estimate current market value of your land.

Planning ahead for the steps after getting approved will lead to a smooth land loan process and ownership experience.

Alternative Options to Land Loans

Beyond standard land loans, also consider these options to finance Virginia land purchases:

• USDA loans – For rural properties, these offer low fixed rates and no down payment.

• Seller financing – Some sellers may offer owner financing at below market rates.

• Home equity loan – If you have equity in an existing home, tap it to buy land.

• Personal loan – Banks and credit unions offer installment loans that can fund a land purchase.

• Crowdfunding – Pool small investments from multiple sources.

• Business lines of credit – If land is for commercial use, a business LOC may provide financing.

Consulting with lenders to discuss all your options will reveal the optimal loan program to match your financial situation and land goals.

Wrap Up

Current land loan rates in Virginia range from 3% to 10% based on individual borrower profiles and property factors. While rates have increased from historic lows, Virginia still offers competitive financing for purchasing vacant land. Land loans allow the flexibility to buy property now and develop on your own timeline in the future. By shopping multiple lenders, improving your credit, and making a sizeable down payment, you can secure the most favorable Virginia land loan rate to make your property dreams come true.