If you want to have a piece of land for business purposes or residential purposes and you don’t have enough finance for it, then an easy option is to get a land purchase loan.
Nowadays, you get the loan facility from banks at reasonable rates. The traditional mortgage lender was a thing of the past and is not availed by wise people.
But getting a land purchase loan can a little bit tricky; all the banks are not very enthusiastic about giving you this loan. There are many reasons for the same. One of the major reasons is that it is an unsecured type of loan which poses a threat of loses to the lending company.
For the applicant, it requires much paperwork with a bigger down payment, higher interest rates, and short tenure. And that’s why before taking a land purchase loan, you should know everything about it. Some of it can help you reduce your cost too.
So, here is some more information about land purchase loans that will help you get better knowledge about the same.
What do you mean by land loans?
Finance provided to you to buy land is termed as a land loan. Financial institutions giving land loans cover a small amount of market. This loan being riskier is not preferred by many banks and financial institutions.
Land loans are not backed up with any collateral or any security and therefore leave no guarantee with the banks to recover their money if the projects failed. Many of the lenders believe that the customer stops making the payments and leaves the land and the construction project in between itself.
After considering the things mentioned above, it is advisable to take a loan for an existing home and building rather than starting from scratch and building your structure.
But if you wholeheartedly want to build the structure from scratch, then it may be harder to get a land purchase loan but not impossible. You have to pay a higher interest rate and substantial down payments. You will also have to pay the whole amount due in a shorter period.
Types of land loans available to you
Here are three common types of land loans that you can avail according to your convenience.
Lender land loan
Financial Institutions and local banks are ready to offer you land loans. They provide you with this loan because they are aware of their surroundings. They know the value and potential of the land.
However, if you don’t plan and develop your land, then your interest rate can be as high as 50%. Whereas, you can get low-interest rates and low down payments if you would start the construction on the land shortly. You can also get long tenure for the same.
Home equity loan
If you have an existing home with you, then instead of taking a land purchase loan, you can also go for a home equity loan.
It is advisable because, in a home equity loan, you don’t have to pay any down payments. You also get a loan at a lower rate of interest.
Sometimes, the seller of the land is willing to offer some finance to the buyer for the short-term. However, he is not a professional business lender and, therefore, can charge a higher rate of interest. But you can at all times discuss it out.
For avoiding loopholes and uncertainties from either of the parties, it is advised to get the proper document signed from the proper authority. Also, this type of loan can be the last option if you don’t get any other loan.