Going for a land loan is the best option when you want to finance raw lands for investment purposes. But it isn’t as simple and easy as applying for a mortgage. It brings forth unique challenges for potential buyers.
This blog details three things you need to consider when applying for a raw land loan.
Land Basics: Access, Zoning, and Boundaries
The lender will evaluate if the deal you’re getting is profitable or not. Therefore you must have surveyors draw the borders and design a blueprint for you to present to the lender who’d then analyze your project and decide accordingly.
Clear-cut boundaries will help the lender have a better idea of the property which would otherwise have been missed out during evaluation. Double-check land-use regulations and zoning before submitting the final report to the lender to avoid discrepancies.
Access to Basic Utilities
Access to utilities is another significant consideration for residential sites. Lenders will readily help you invest in properties that have adequate electricity, water, sewer, and cable installments. To save you time, you must submit all the documentation and certification needed for the essential utilities.
Always check with the local planning authority to see what the future holds for your area. A new family spot across the street has the potential to increase property prices in the coming years, whereas a sewage treatment facility or a highway is not profitable. Presenting profitable plans might help convince your lender to invest in the property.
Land Use: Immediate Construction, Improvements Required, Speculative Investment
The loan terms, such as interest rate and down payment, are mostly based on the land’s intended use. Therefore, getting a land loan is usually more challenging and stressful than getting a mortgage for an existing house.
This is because an existing home provides the bank with tangible and instant collateral, whereas new construction has a higher risk of things going out of hand.
It’s better to have land that’s ready for construction as it’s next in preference to existing homes by the banks. Things can go wrong, cause delays, or cost more than the intended budget, but it is still possible to achieve the desired outcome in the long run. The down payment is usually 15-20% of the total amount.
Undeveloped land with no plans to develop it is simply a speculative investment for the future. A project in this manner, for example, could entail purchasing land as a new motorway is going to be developed nearby.
So when the motorway construction is complete, the expectation is that the site will appeal to developers looking to establish a new community with a quick commute into the city. As a result, the land might subsequently sell for a profit. For such speculative investments, a down payment can reach up to 50%.
If you’re looking for land loans for your next investment, contact Commercial Private Equity!
At Commercial Private Equity, we provide private specialized loans, including construction loans, workout loans, raw land loans, and bridge loans. To make loan acquisition easy for our clients, we also have a three-level loan program with different loan requirements.
Contact us now to make your dream investment project come true.