If you are looking to build your dream house or even preserve a piece of nature, there is no better way to do so than to purchase land. However, land doesn’t come cheap, so you may need to utilize a loan to purchase this piece of property. Although the land is generally considered a safe investment, lenders often qualify land loans as risky. As a result of their risky label, being approved for a land loan can be a complicated process. Here are a few simple options to finance a land purchase.
The complexity of the process of land funding can depend on the type of land that you are purchasing:
- Property purchased intending to build
- Raw land without any plan to develop or develop
In most cases, land loans short term loans and last anywhere from two to five years before the dreaded balloon payment comes due. However, not all land loans are short-term. Longer-term loans do exist, especially for those who plan to build a home or residence on the property.
Types of Building Loans
Generally speaking, lenders are more likely to issue a loan if you have plans to develop or build on the property. Keeping raw land is considered speculative and doesn’t offer many rewards. Building structures are also risky; however, banks typically prefer this option since structures add value to the property. So what kind of personal loans to buy land are available?
Construction Loans
This is an all-inclusive loan that covers the cost of that land and the construction together. This loan creates a lot less paperwork and usually fewer closing costs as well. Moreover, securing this loan will fund the entire project, so you don’t need to wait to find a lender.
Building Plans
To get a construction loan, you will need to be ready to present detailed plans to the prospective lender. Lenders typically require the plans to make sure that a builder with experience in completing the construction. As the project progresses, the lender will allocate the funds, and the contractors need to complete the project to get paid.
The Loan Features
Construction loans are typically short-term loans and feature interest-only payments that should last less than one year. If the project is not completed by that time, it might be converted into a standard 30-year or 15-year loan. You can eventually refinance and use your newly developed structure as collateral.
Other Costs
Remember that once you are a landowner, you may have some additional expenses as well. Make sure to review these expenses in addition to the costs of the loan. These expenses might include:
- County taxes
- Insurance payments on vacant land
- Homeowners’ association (HOA) fees
- Any maintenance usually required repairs
- Permit fees, generally for any construction
Closing Thoughts
When you first see a vacant lot, it is easy to imagine all of the possibilities that await. Remember to consider local zoning laws and requirements before making a plan. This also applies to private property. HOA laws exist and can be frustrating. Always consult with an attorney before signing a contract.
If you ever have any issue with the property, or you need to make any changes later, you will need to follow the proper procedures. This might mean filling out paperwork or paying a fee, so make sure you are satisfied with all of the conditions before signing a contract.
Get help with your land for sale in Merced, CA. Call Soldavi Reality today at 209.975.7653.