If you're going to purchase land, you'll probably need a loan. Land parcels can be quite expensive, and securing financing for one can be a challenge. Lenders may be more reluctant to offer a loan for undeveloped land purchase than they would for a traditional mortgage. However, with the right approach it is possible to secure the loan you need.
Check Your Credit Before Applying for Your Land Loan
Before you do anything, take a long, hard look at your credit. If your credit score is high, this is the perfect time to invest in some land. If your credit score is low, you may have a problem. You may not be able to secure the loan you want. Even if you do, the fees, payments and interest rates may be prohibitive.
Keep in mind that you are going to need money to build on your home in addition to the money needed to secure the land. If your credit score is not appropriate for loans of this size, it's better to wait until you can improve your credit rating than to forge ahead anyway. Buying land prematurely could result in foreclosure if you can't make payments. If this happens you will lose any money you have invested and have nothing to show for it.
When Applying for a Land Loan, Be Ready to Build Fast
If you can show a potential lender that you plan to build on the property as soon as you acquire it, you stand a better chance of getting an affordable loan. Lenders want to see what you will do with the area you are buying. If you can show a lender specific plans for building on the property, you can reduce some of the perceived risk of the loan.
Get a Line of Credit With Your Land Loan
A good plan to work out with your lender is to take out a mortgage for the property and a line of credit for home construction and combine them both into a single loan. Although you may be borrowing more money, the fact that the lender knows there will be construction on the property in short order makes the loan more attractive.
Compare Lenders
Although finding lenders for undeveloped land may be a challenge, they are definitely out there. Don't be afraid to talk to a few lenders about options before deciding on the one you want. A well-considered decision here could save you a fortune down the road.
