How to Use a Loan for Land Purchase Calculator

Land Loans vs Traditional Mortgages

Banks and other lenders tend to view land loans with a wary eye, and consider them to be more of a risk than a standard mortgage. The reason for this is simple. Borrowers are much less likely to walk away from a home loan, particularly if the property is being used as a primary residence. Moreover, a house on a lot has greater value on the open market, and makes for a more secure form of collateral. Undeveloped land, on the other hand, doesnt deliver the same degree of investment security for the creditor.

People are much more likely to walk away from a land loan than a mortgage, potentially leaving the lender with an unimproved parcel of land which they will have to sell to recoup their losses. Consequently, land loans can be more difficult to obtain, particularly if you dont have a definite plan in place to improve the property and increase its value. Banks also tend to charge a higher rate of interest to offset the additional risk.

There are a number of variables that can influence your financing options when buying a piece of land. The most important of these is the land itself, its location, and how it will be used. While any parcel of land has some intrinsic value as a real asset, you are much more likely to be approved for a loan if you can show that it also has value as an investment. Location is key, and lenders are much more likely to underwrite a loan for a prime piece of desirable real estate than for a plot of land in the outskirts of nowhere. Should you default on the loan, they will have an easier time disposing of the collateral and offsetting any potential losses.

Another key consideration for lenders is the nature of the land you will be buying. For example, raw land is deemed a far greater risk, and is much more difficult to finance. Thats because it lacks any man-made improvements (clearing, roads, sewer, water), and it will take a major influx of time and money to increase the lands market value. Buying raw land can be significantly cheaper than buying already improved land, but it will be harder to find a lender willing to finance your purchase. If you do find a lender willing to work with you on your purchase of a raw parcel, you may find that your loan will fall under the umbrella of commercial lending, in which case you should expect higher interest rates and more restrictive repayment terms.

Finally, lenders are also interested in how youre going to utilize the land itself. Do you have plans in place to further improve the land, bringing it up to local codes and preparing it for construction? Are you planning to build on the land immediately, or will you be holding onto the parcel as an investment property? These are important points to consider, because they can greatly impact your ability to get a loan written at favorable terms. If you are planning to build on the land immediately, and you have construction plans in place, you are more likely to be approved by a lender. Moreover, you may qualify for a construction-to-permanent loan covering both the purchase of the land and the building project.

If you are shopping for a land loan, the first place to start is with a local bank or credit union. Local is key here, because as part of the community the lending institution will have a better idea of the value of the land you are planning to purchase. Local lenders also have a vested interest in the growth and sustainability of the community itself, and as such may be more likely to underwrite a land loan than a national lender with little or no regional presence. That being said, when borrowing money from a local bank or credit union you should be prepared to overcome some challenges, and you may have to shop around until you find a lender willing to give you a loan with satisfactory terms and interest rates. Keep in mind, that lenders consider land loans to carry a higher risk, particularly if you have no immediate plans to build on your lot, and as such they may be subject to the following restrictions:

Lower Lending Limits – Even if your credit is in great shape, the lender may put a cap on the amount of money you can borrow against your purchase. Again, this is to offset the inherent risks associated with land loans. People with bad credit will have even lower limts.

Larger Down Payments – Land loans typically require a larger down payment than traditional mortgages, often as much as 20% to 30% of the asking price. If you are purchasing raw land, the preferred down payment can be as much as 30% to 50% of the total cost.

Higher Interest Rates – Again, due to the high risk nature of land loans you should expect to receive a higher than average interest rate from your lender.

Shorter Loan Terms – Land loans typically have shorter, and more restrictive, repayment terms. You may be able to extend the loan terms if you qualify for a construction-to-permanent loan. If you are intending to purchase raw land, you should expect the loan terms to be even more restricted, with terms be limited to under 10 years.

While it may be easier to secure a loan from a local bank or credit union, you should be prepared to pay some additional fees over and above the cost of the loan itself. These fees are mandatory, and are used to cover the following requirements:

• Title Search
• Title Insurance
• Land Appraisal
• Land Survey
• Attorney Fees

As always, the bank or credit union will review your personal credit history before approving you for any loan. It will also have a significant impact on how that loan is written, what interest rates you are offered, and how much of a down payment you will be required to pay up front. Before you apply for a land loan, review your credit report and credit score so you can come to the negotiating table fully informed.

Owner financing is an attractive alternative to traditional lenders, and in some cases may be easier to obtain. Of course, in this scenario financing is entirely left to the discretion of the land owner, so you will have to be prepared to negotiate a favorable deal. Still, if you have been turned down by your bank or credit union, owner financing is your next best option.

When it comes to buying land, there are two basic forms of owner financing – ‘contract for deed and ‘mortgage/trust deed. Each has its own advantages and disadvantages for both buyer and seller.

Sometimes referred to as a ‘land installment contract, this allows the buyer to pay the land owner in installments over a predetermined period of time. Typically, there is a final balloon payment that further compensates the seller for financing the purchase. The upside of contract for deed financing is that it is often easier to obtain, particularly for people with poor credit scores or less than perfect credit histories. The downside is that the seller retains the deed to the land in question, and only transfers it when the debt is fully paid. If you, as a buyer, are thinking long term this is an excellent solution. However, if you have a construction plan in motion it will be delayed until rights to the land are fully transferred.

Also called a ‘deed of trust‘, in this option the seller will issue a deed to the buyer in return for a promissory and mortgage contract. The promissory note guarantees payment to the seller, and the mortgage acts as collateral against the promissory note. The benefit here is that the buyer has immediate access to the land, so you begin construction as soon as youre ready. The downside is that you will have to negotiate with a third party lender to establish the mortgage. However, having a building project in motion should make it easier to secure a mortgage to back up your promissory note.

Current Personal Loan Rates

Buying a parcel of land, either as a long term investment or on which to build a new home, is not quite as simple as you might think. Unless youre in a position to pay cash up front, youll need to borrow some money to finance the purchase. But borrowing money to purchase raw land is not quite that straight forward.

Land loans are unique financial products, and they are handled differently than mortgages and other secured loans. If youve never purchased land before, you may find the process a bit more challenging than you expected. But a short primer should help you understand how land loans work, and what your options are when looking for a lender.

Getting A Loan To Buy Land | Buying Land To Build

FAQ

How hard is it to borrow money to buy land?

Which loan is best for buying land?

What is the longest loan you can get for land?

How much would a $90,000 loan cost?

How do I calculate land financing payments?

Calculate land financing payments for buying acreage and lots with our land loan calculator. Get monthly payments based on land contract price, interest rate, and down payment. View land prices to explore affordability. Estimate only — finance availability and payments will vary. Closing costs and other property expenses may apply.

What is a Land Loan Calculator?

The land loan calculator is a handy tool that, when you are looking for land financing, can help you to calculate your amortization payment. It works similarly to a mortgage calculator. However, a land loan is not considered exactly like a land mortgage since, in some countries, there may not be a collateral requirement.

What is a vacant land loan calculator?

Vacant Land Loan Calculator to calculate monthly mortgage payments with a land contract amortization schedule. The land mortgage calculator returns the payoff date, total payment, and total interest payment for your mortgage.

How much does a land loan cost?

The monthly land loan payment would be $1,060.66 for 10 years. Once you have found your loan payment amount, you can now find your total payment amount and the total interest cost of your land loan. Your total land loan payments would be your regular loan payment amount multiplied by the number of payments that you have to make.