Purchasing raw land can be an exciting prospect filled with possibilities. Whether you want to farm, build a dream home, or simply enjoy nature, raw land offers potential. However, the process of securing financing for vacant land has its challenges compared to buying a house with a structure already on site. This is where a raw land loan calculator becomes an invaluable tool when assessing options.
In this comprehensive guide, we’ll explore how a raw land loan calculator works its key inputs and how it can aid your land buying journey. Let’s get started!
What is a Raw Land Loan Calculator?
A raw land loan calculator is an online tool that allows you to estimate your monthly payment when financing vacant land. It factors in the purchase price, down payment, interest rate, and loan term to calculate your amortized monthly payment amount.
These handy web-based calculators take the math legwork out of determining loan affordability for your land purchase. Their simplicity makes it easy to experiment with different loan variables to find the optimal financing scenario.
Raw land loan calculators function similarly to mortgage calculators for structures, But they account for the unique nuances of raw land loans like higher down payment requirements and interest rates
Why Do You Need a Raw Land Loan Calculator?
Utilizing a raw land loan calculator offers several benefits for both buyers and sellers
For Buyers:
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Estimate monthly payment for a certain purchase price
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Assess how different down payment amounts or loan terms impact affordability
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Compare payment options of 15-year vs 30-year loans
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Gauge if you are comfortable with the periodic payment
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Determine your price ceiling based on monthly payment constraints
For Sellers:
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Calculate loan payments from a buyer’s perspective to set an attractive asking price
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Understand buyer limitations when setting a price for vacant land
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Evaluate what financing terms buyers can realistically obtain
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Set pricing in line with prevailing land loan rates and down payment expectations
What Are The Key Inputs Of A Raw Land Loan Calculator?
These are the core factors that go into raw land loan calculations:
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Purchase Price: Total cost of the land
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Down Payment: Upfront payment by buyer, typically 10-25% of the price
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Interest Rate: The annual rate charged on the loan, usually 6-9%
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Loan Term: Length of the loan, often 15 or 30 years
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Payment Frequency: How often payments are made, usually monthly
By inputting combinations of these variables, you can derive monthly principal and interest payments on a raw land loan. Tweaking the inputs gives you flexibility to find an optimal scenario.
How To Use a Raw Land Loan Calculator
Follow these steps when using an online raw land loan calculator:
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Enter Purchase Price: Input the total land cost in dollars.
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Input Down Payment %: 10-25% is typical, indicating your upfront payment.
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Select Interest Rate: Rates for raw land range from 6-9% currently.
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Choose Loan Term: 15-year or 30-year are most common.
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Pick Payment Frequency: Monthly payments are standard.
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View Monthly Payment: Calculator displays principal + interest amount per period.
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Assess Affordability: Gauge if you are comfortable with the payment value and make any adjustments needed to the inputs.
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Compare Scenarios: Test different down payments, rates and terms to find the optimal mix for you.
What Other Expenses Should You Account For?
When buying raw land, keep in mind your total monthly costs will also include:
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Property taxes and insurance – contact your local assessor’s office to estimate annual taxes and get insurance quotes.
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Land loan fees – ask lenders about origination fees and closing costs for a more complete cost view.
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Development costs – factor in expenses to add access, utilities, etc. if needed.
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Commute costs – consider travel time and fuel if the land is not close by.
Build these additional expenses into your budget. The raw land loan calculator simply provides an initial monthly payment estimate.
What Are Some Raw Land Loan Calculator Tips?
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Get pre-qualified for a raw land loan before using the calculator to know your real loan options.
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Research recent land sales in the area to enter an accurate potential purchase price.
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Limit loan term to 15 years if possible to pay less interest over the long run.
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Use a down payment of 20-25% – lenders prefer larger down payments on raw land.
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Input a slightly higher interest rate than current averages as a buffer. Rates fluctuate.
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Test “worst case” high-rate scenarios first, then assess lower rate options to identify price ceiling.
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Verify total monthly costs for taxes, insurance, maintenance, and development are affordable for you.
Things To Know About Raw Land Loans
If you’re new to financing vacant land, here are some key things to understand:
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Down payments are usually 20-25% minimum compared to 3-5% on homes.
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Interest rates run 1-3% higher than residential mortgage rates.
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Loan terms usually max out at 30 years, with 15 years preferred by lenders.
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Requirements for credit scores and debt-to-income ratios are stricter.
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Payments on raw land loans are not tax deductible like mortgage payments.
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Raw land can be riskier collateral with no existing structures/use.
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There may be development requirements to secure financing based on intended land use.
These dynamics make raw land financing more challenging. The calculator lets you assess feasibility given tighter lending standards.
How Does a Raw Land Loan Calculator Work?
The calculations used to determine periodic payments are based on standard loan amortization formulas. Here is a simplified overview:
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It first calculates the loan amount by taking the purchase price minus the down payment.
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Using the loan amount, interest rate, and loan term, it determines the periodic payment needed to pay off the loan.
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The payment derives from the loan amortization formula based on compound interest.
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Each payment contributes towards both loan principal and interest.
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Early payments go primarily towards interest, while later payments pay down more principal.
The end result is an estimated periodic payment value for your scenario, illustrating loan affordability.
Key Differences From Mortgage Calculators
While raw land loan calculators work similarly to mortgage calculators, there are some notable differences:
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Higher Rates: Mortgages for existing houses often have lower interest rates.
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Shorter Terms: Mortgages usually allow longer terms up to 40 years. Raw land loans peak at 30 years.
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No Tax Deduction: Mortgage interest is tax deductible, land loan interest is not.
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Higher Down Payment: 20-25% minimum is required for raw land loans vs 3-5% for conventional mortgages.
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Tighter Credit: Land loans warrants stricter credit score/debt requirements as vacant land represents higher risk.
These contrasts demonstrate why a specialized raw land loan calculator is necessary versus relying solely on a mortgage calculator.
Common Follow-Up Question – When Do I Get The Loan?
A natural question after using the raw land loan calculator is “When will I actually receive the loan money?” The answer depends on where you are in the land buying process:
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If still shopping for land, use the calculator to set your affordability parameters during the search.
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Once under contract, formally apply for the land loan and get pre-approved using the specific property and price.
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After pre-approval, the lender will require an appraisal of the property before finalizing the loan.
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At closing, after all conditions are met, loan funds disburse and land title transfers to you!
BE sure to consult your lender for complete timelines and requirements as each situation is unique. The calculator provides initial estimates.
Raw Land Loan Calculator Takeaways
When used properly, a raw land loan calculator simplifies the complex process of financing vacant land purchases. As buying raw land differs greatly from buying a residence, this specialized tool provides invaluable loan payment estimates you can rely on when evaluating land affordability. Check out several raw land loan calculator options to find one that best suits your needs and offers the ideal user experience.
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.
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.
How to Get a Land Loan (And What to Know Before You Do)
FAQ
What is the longest loan you can get for land?
How much would a $90,000 loan cost?
Which loan is best for buying land?
What would be the payment on a $100,000 loan?
How does a land loan calculator work?
This land loan calculator computes monthly payments & the total interest based on the purchase price, downpayment amount, interest rate and number of monthly payments. Are you buying a house or car? If so, we also offer custom calculators for home loans & automotive loans.
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.
What is a land loan amount?
Land Loan Amount – The original amount of your land loan when it started or when it will start. Loan Term Years – The original length of your land loan. Interest Rate – The rate of interest on your land loan. Monthly Payment – The calculated monthly payment on your land loan.
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.