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Landing a Loan
Learn How to Finance Your Land Purchase
It can be difficult to obtain a loan for a vacant lot, and borrowers who successfully find a lender still will be forced to make a larger down payment and pay a higher interest rate than on a traditional mortgage to make up for the higher risk. Buyers have a better chance with local lenders and are more likely to receive more attractive financing if they plan on building a home on the empty land in the not-too-distant future.
In fact, many lenders require detailed home plans before they will approve the loan. In most cases, buyers make a down payment; secure a loan for the remaining land costs; use a line of credit to pay for the home's construction; and combine the land loan and credit line into a single mortgage once the home is finished.
Lot prices once equaled 20 percent of the total project, but the dwindling supply of developable land has pushed prices closer to 50 percent. Buyers can work with building firms to find land suitable for a specific home design as well as handle soil testing and zoning issues.
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