A purchase of unused land is harder to finance than a parcel with an existing property because most lenders find these types of loans to be too risky.It is possible to get financing for a land purchase, but you will need to do your homework and convince the lender of your ability to repay the loan.This requires a lot of information about the property and your plans for it.You'll be able to choose the type of loan that's right for you once you've gathered the information you need.
Step 1: The land should be professionally surveyed.
To determine its dimensions and property lines, you will need to have the land surveyed.A survey will show the neighbor's rights to travel through the property.Right-of-way issues are critical to open plots of land because they are important for the purposes of improving or using that land over time and may affect your ability to get a loan.See how to get a land survey for more information.Sometimes you can simply ask for a recent land survey from the seller.
Step 2: Look at the relevant laws.
If you want to find out how a plot of land can be legally used, go to the municipal offices.If your intended use for the land is not allowed by the municipal government, you may be able to apply for a change.You may want to get flood or hazard warnings for the land.These documents may be asked for by a potential lender.
Step 3: Evaluate any changes to the land.
There are improvements to the plot of land.It is possible to secure financing by adding improvements to the land.If you want to build structures on the land, it may be easier to get financing.Depending on your needs, these could be residential or commercial structures.If you want to build a structure, you should have an architect draw up plans for it.A general contractor can be contacted for an estimated cost of building the structure.Most of the time, 100% financing packages are not available for raw land.You will be expected to have a stake in the financing.It is possible that a piece of land is close to water and sewer utilities.Other types of access may affect a financing deal.Contact the utility companies that service the area for an installation estimate if there is no existing utilities on the land.Even if there is no building on the land, existing wells, trails, roads or other items may increase the perceived value of the parcel.Financing will be easier to get if value improves.
Step 4: There are many ways to produce asset value on land.
The timber value is the most common one for unimproved land.Land calculations often show timber value for a piece of forested land.This value can be used to convince the lender that you will be able to profit from the land.There are ways to make money on a piece of land.
Step 5: Pick out your information.
A land portfolio is a loan application in which you put the information about the land and your plans for it together.The lender will be able to tell you a better story if you have more information.Your land portfolio should include information about your credit report and score.
Step 6: You should consider hiring a lawyer.
If you are buying raw land, consider hiring legal help.A real estate attorney will make sure that your rights are protected during the bidding process for the land and the financing process.A good attorney can help with price negotiations.
Step 7: An offer can be made on the land.
You will need to make an offer on the land before you can buy it.The process can be very simple, but also very complicated.The buying process for land can be found in How to Buy Raw Land.It is in your best interests to ask for an exclusive option on the property for a period of time so you can pursue financing.Since there is less money involved, having an option is better than owning.Before you make an offer on the land, make sure you have the proper permits and insurance.Ask your lawyer for help.
Step 8: Contact potential funders.
You will have to find a way to finance your purchase if your offer is accepted by the seller.Get in touch with local banks and credit unions to get a loan interview.You need to present your land portfolio to the lender.You might be able to get a loan through one of these institutions if you have good credit and a good land portfolio.
Step 9: Consider other options for financing.
It may be difficult to get funding from a financial institution for some land types.There are a lot of financing options available.Additional security may come from downpayment in place of other assets.Be aware that some financing options may be more expensive than borrowing from the bank, so consider your options before setting down any of the following paths.The other option is owner financing.You can gradually pay the seller of property directly, instead of going through a lending institution.A large down payment is required to secure the seller's trust.Legal documents will be used to secure owner financing.The seller of the property should be contacted to see if they are willing to do this financing option.Private-party loans are another option.You will need a friend or family member to lend you money.The lender takes possession of a house or car if you default on the loan.If the land is being purchased for a specific purpose, like for farming or commercial use, you may be able to apply for government loans.The Small Business Administration (SBA) and the United States Department of Agriculture (USDA) offer land loans to farmers who fail to qualify for traditional loans.Contact your local SBA or USDA office if you want to learn more.
Step 10: You should compare your financing options.
Compare the total costs of each loan against each other.Unless you have great credit and can get a low-interest bank loan, owner financing is the cheapest option.You don't want to take a great interest rate but be stuck paying it off for a long time, so think about the duration of the loans.If you're utilizing your land for profit, choose a loan that you can afford and one that will allow you to earn money in the long run.
Step 11: Pick a loan.
Pay the down payment on the loan that works best for you.In some cases, the down payment may be as high as 50 percent of the property's value.