How to Get the Best Lot Loan Rates

Securing the best lot loan rates is a combination of finding the right loan type, making a down payment, and being persistent. Lenders make lot loans available for two main reasons: to build an owner-occupied home and to build a non-owner occupied home. The lower the risk the lower you interest rate will be.

Loan Type

Owner-occupied homes are those in which the owner will live themselves. Lot loans for owner-occupied properties will always offer the best rates. These are the most commonly places lot loans and there are many programs to choose from government supported loans to your local commercial lender. Local community lenders often know the local market best and make great lot loans available to their local contingent. To obtain the best lot loan rates you should start with your local community bank or savings and loan.

Non-owner occupied homes are those which the owner/builder will not be occupying the property. They may be building on the lot to rent the final property or to sell it on spec. Residential sub-development builders use these loans often, as do apartment builders. These loans are typically reserved for building as a business, carry more risk on the lender's part, and therefore carry higher interest rates. If you're in the business of building non-owner occupied homes then your rates will be higher than the owner-occupied counterparts. 

The difference in interest rates between owner-occupied and non-owner occupied loans may be as little as one half of a percent to three percent or more. On a loan of $100,000 that could mean a difference in payment of up to $200 per month.

Down Payment

A larger down payment means a lower loan amount, and this means less risk for the lender.  Most national lenders allow down payments of as little as 3.5% of the purchase price, but those who put down 20% or more will be offered the best rates available. Generally speaking, the larger down payment you offer the lower the lender's interest rate will be on lot loans.

Discount Fees

Some lenders let you pay discount fees, also known as "buying down" the interest rate. By paying a flat fee, usually a percentage of the loan amount, you can lower your interest rate from the rate the lender quotes. For example, a lender may lower your interest rate by 0.375% for each point you pay in discount fees.  A point is 1% of the loan amount. On a $100,000 loan, one discount point would be 1% of $100,000 or $1,000. If the start rate offered was 6%, the buy down would thus make your rate 5.625% (6.0%-0.375%). 


Persistence in the mortgage industry is called "shopping around." This means applying with several lenders to get the best rate and terms. By shopping around you will get a range of lot loan rates for which you are likely to qualify. Ultimately, you will only choose one lender to supply your loan, but by comparing apples to apples you will be able to determine which lender that should be.

Look around for special programs like first time buyer incentives, special rates offered by credit unions, and some lenders offer lower lot loan rates if you have checking and savings accounts with them or choose to pay your loan by using direct deposit.

Always remember to get a good faith estimate, known as a GFE, from each lender to whom you apply,  which lists all the pertinent loan information on one easy to read form. When you have several good faith estimates you want to view them side by side and compare similar terms like amortization, fixed payment periods, down payment, and loan amount. When all of these terms are equal, the lender offering the lowest interest rate will be the one to choose.