Where to Get Land Loan Financing for Residential Lots

Land loan financing is essentially the same thing as a mortgage, but it is not used to purchase developed property as would be the case in purchasing an established home. This type of financing is available from a variety of sources, but the process to obtain it generally includes more rigorous scrutiny. This is because land loans are often riskier for lenders. Land loans for eventual residential development can look more attractive to lenders, but approval will still involve a number of steps that begin long before the application process starts.

Step 1 - Selecting the Property

If the intent is to purchase land and obtain loan financing for it, the actual property can play a big role in whether financing will be forthcoming. While lending agents can differ in their requirements, properties that are readily eligible for some improvements often look more attractive to lenders because the owner can develop a greater stake in the purchase.

The things to consider when selecting a property for land loan financing and eventual residential development include:

  • the location
  • the availability of basic services like utilities
  • access
  • any impediments to eventual construction

Step 2 - Developing a Plan

When land loan financing is needed for residential development, it is often best to develop a rough plan before seeking funding. A plan for construction can show lenders that the owner has full intent to increase his or her stake in the property.

It may not be necessary to develop a highly detailed plan, but borrowers will look more attractive to lenders if they take the time to get basic surveys of the property performed.

Step 3 - Down Payment Acquisition

Institutions that offer land loan financing will generally require a sizeable down payment. Borrowers will look more attractive during the approval process if they have a down payment of at least 20 percent. Some lenders, however, will require at least 50 percent down to even consider financing land loans.

Step 4 - Basic Application Process

Once the property is selected and surveyed and a down payment is in place, a standard application process will generally be the next step in obtaining land loan financing. Lenders that will write loans of this type include traditional banks, credit unions and mortgage companies. Their rules and requirements for applications can differ, but borrowers can expect to have to:

  • fill out request forms
  • reveal and prove financial information
  • submit to credit history checks
  • possibly prove the availability of the down payment
  • submit intended preliminary plans for the residential development in question

Once paperwork is submitted, lending agents will then determine the creditworthiness of the applicant and weigh it against other factors, including the property's value versus the loan request.

Obtaining land loan financing is often much more difficult than buying a developed piece of property. When planning goes into the initial phases, getting financing is not out of the question.

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