Land loans are a great option for financing the purchase of a piece of land and they come in a variety of forms. Loans for land are generally harder to secure than loans for something like a car or home, partly because land can be a harder piece of collateral for the bank to resell if the borrower happens to default on the loan. What this means is that a lot of major banks will shy away from financing the purchase of only land. Smaller institutions or lenders familiar with a local area are more likely to be willing to offer a loan for your land purchase, but in most cases, because of the higher risk to the lender, the down payment will be larger and the interest rates will be higher than with a typical mortgage loan.
One of the first things a borrower should determine is if the land they are purchasing intends to be purchased as raw and unimproved, or if they plan to increase its usability and value through means such as getting public utilities, re-zoning, or building a structure. Lenders will probably be more likely to fund your loan if you plan to make some kind of improvement to the land. Most major land loans taken out for commercial building projects are very large in size and scope. The plans and documentation are vital pieces of information for the lender to consider, especially in a loan where 10s of millions of dollars are at stake. Some of these larger construction loans include financing for dwellings such as planned communities, apartment buildings, hotels, and shopping malls, among others.
Even if you're just an individual looking to secure a smaller loan for a piece of investment property, or even just a lot that you will use to build your next home on, there are still plenty of private lenders out there willing to consider your financing needs. In fact, if you are purchasing a home lot which is similar in size, price, and layout to the rest of the neighborhood lots, you may even be able to get the financing through a larger bank chain rather than having to go the private funding route. It is our aim that the information provided on this website will help you in deciding which kind of loan might work best for your next land purchase.