How to Secure Favorable Land Loan Rates

Finding quality land loan rates to purchase land is the first step to building a custom house designed just for you. This can lead to many questions, including what are the current land loan rates and what is involved in this process, as well as many others.

Land financing can be a complex process, and it is important that you understand what is involved and where to look for this financing so that you get the best results possible. Land can be found in many sizes, ranging from a fraction of an acre to large lots that may cover one hundred acres or more, and the price can also range from very low to very high.

There are a number of options available if you want to purchase land, and these include paying cash for the full purchase price. This is not an option for most buyers, so some type of loan or financing must be received in order to make the purchase.

This can be done using a land mortgage loan or by entering into a land contract with the seller and owner of the land. Both of these methods will usually require some type of down payment, and this may be either to the mortgage lender or the property owner.

Both of these methods offer advantages and drawbacks, and should be carefully evaluated before making a final choice. In some cases a land contract may be easier to obtain with a large down payment amount, but the interest charged may be higher than a traditional mortgage with decent land loan rates. There are other benefits which may be missed as well.

Applying For Land Mortgage Financing

Applying for a land mortgage involves several requirements, and you may need collateral or a co-signer in certain situations. Your credit score and credit history will also be crucial, because a low credit score is often a reason for a loan application denial. Some lenders advertise land loan rates for individuals with a poor credit history or score, but you will pay a much higher interest rate and fees for these finance products.

Collateral is property that you can use to secure the land loan rate, such as a home or financial instrument, guaranteeing the lender that no financial loss will occur as a result of your loan. If you default and do not make the required payments on a loan that is secured by collateral, the lender can take the collateral to pay off this debt.

A co-signer may be required for a loan if your credit history and score are not excellent, and you do not have sufficient collateral to cover the loan amount. A co-signer is someone who is willing to take responsibility to ensure the loan payments are made on time.

Your choice of co-signer can affect your land loan rates, because their credit score is used as a factor to determine these rates as well as your own credit rating. If you do not make the payments then the co-signer will be held responsible by the lender.

The Loan Application Process

Applying for a land mortgage starts with the loan application. Before you even start any land loan rate application you should do your research, and determine which lenders offer this type of loan in your area. Compare each lender, looking at the rates charged as well as other variables, to find the one which is best for your specific situation and circumstances.

The service provided, the origination fee and additional costs added, any consumer complaints or lawsuits filed against the lender, and other relevant factors should all be evaluated during this research. This can prevent you from making a big and expensive mistake, one that could affect your property as well as your finances and credit rating.

Once you have chosen two or three lenders which are right for your situation and land loan rates needs, you will need to fill out an application for each of these lenders and submit it to them. You can use two different methods when it comes to financing for a land purchase. You can apply for pre-approval, which will let you know how much you have been approved for in financing before you start looking for land to purchase.

For many buyers this is the best method, because it prevents any land hunting for properties above your price range. For others the land is found first, and then a loan is applied for. This method can involve some disadvantages though, and most buyers prefer having pre-approval before looking at possible land purchases.

Land Loan Rates Will Vary Significantly

Financing for a land purchase can involve an interest rate that can range substantially. Each lender determines their own specific interest rates used, and there are a number of factors which are used to determine this rate for each lender.

Some factors which are used to evaluate the loan rate you will receive may include:

• Your income
• Your occupation
• Length of time on the current job
• Previous work history
• Your credit history
• Your credit score
• Location of the land being purchased with the loan
• Classification of the land being considered
• The lender providing the financing
• Any collateral offered on the loan
• Any co-signer added to the loan
• The length of the financing contract
• The down payment amount provided

For some lenders traditional financing is not an option for one reason or another, and the only option available to buy land is to use a land contract form. This method also offers a variety of interest rates as well, and while the interest charged may seem competitive it can be higher than the rates offered by some financial institutions for applicants with a good credit score and history.

Make sure that you understand all of the options open to you before you decide on a lender and financing method to use for your land purchase.

Is A Land Contract Form A Better Option?

For some situations, a land contract form may seem like a better option. Whether or not this is true will depend on the individual making the purchase as well as the terms outlined in the contract by the seller.

A land contract is similar to a mortgage, because you are provided financing for the land by the seller, without having to come up with the full purchase price in cash when the land is purchased.

A legally binding contract is drawn up between the buyer and the seller, and in exchange for providing the financing necessary for the purchase the seller receives the interest and principal payments over the life of the land contract agreement.

In most cases these contracts require a significant down payment, such as thirty percent or more. A seller has an incentive to agree to a land contract because of the interest earned during the contract period.

In some cases with a land contract the land loan rates can be lower than what is being offered by most lenders, but in others the rate charged is significantly higher. Your credit rating will play a role, because sellers will be more likely to take a lower interest rate if they believe your payments will be made on time.

With a land contract every situation is unique, and there may be many advantages or drawbacks involved. If a land contract is used for financing the land then it should be notarized and filed with the appropriate agencies so that it is legally valid.

Is An Appraisal Necessary?

A loan for a land mortgage follows a process that is similar to a loan for a home mortgage, and this includes an appraisal to determine the value of the land involved. You may wonder if an appraisal is really necessary, after all it is just land and there is no home to evaluate.

The value of land can vary a lot, even in the same geographic areas and with parcels that are the same size and type. There are many elements and factors that an appraiser will consider to reach a fair value for the land. Many lenders will have three appraisals done, and will usually take the middle value as the one used in an attempt to be fair.

The type of land being purchased will have an impact on the value set by the appraiser. Land which can be used for commercial or agricultural purposes may be valued higher than land that can only be used for residential purposes. The availability or lack of utilities is also a factor used to determine land value. If there is water, gas, or electric already available to the property then there will be a higher value assessed.

Without an appraisal lenders would have no way to give a value to the property you want to buy. There could be structures on the property that would increase the value, or there may be only limited access that could cause the value to be lowered instead. While this will not usually affect the interest rate you will pay on the loan, it will have an impact on the amount which is borrowed at the rate set.

Where To Go For A Land Loan

When it comes to getting a land mortgage you may have a number of choices concerning both the lender and the interest rate you pay. Some of the top lenders for vacant land loans nationwide include:

Nationwide Jumbo Construction Loans - Nationwide offers construction loans for many purposes, including the purchase of land with the intent of constructing a home on the property eventually. This company only offers jumbo loans, those with a value of at least $417,000, but in some areas of the United States this can be a small parcel of land for the value given.

Loans through this nationwide program will have an interest rate that ranges from just under 3.4 percent for an adjustable rate loan up to 4.875 percent for a thirty year fixed rate loan. For smaller land loans Nationwide offers loans that can range from 3.990 percent up to 6.990 percent.

Alpine Banker - Alpine Banker is a financial company which offers land loan rates in several states across the USA. The rates charges by Alpine will depend on the length and type of loan you are approved for. A thirty year fixed loan which is conforming will normally run between 4.250 percent and 4.750 percent, depending on the number of points involved.

For a fifteen year fixed rate loan the interest is between 3.750 percent and 4.250 percent, and for a conforming 1/1 adjustable rate loan you can expect to pay between 2.50 and 3.00 percent as an interest rate. This company does offer other adjustable loan types as well, with interest rates that range from 2.625 up to 4.00 percent.

HSBC - HSBC is a well known name in the lending industry, and this company offers decent land land loan rates and home mortgage loans that can fit many different financing needs. Each loan application is considered on an individual basis, according to the merits and value of the property involved.

Loans from HSBC can range in interest rates charges, and can be as low as 3.25 percent or as high as 5.24 percent, depending on your specific credit rating and loan qualifications.

Key Elements Of Land Mortgage Loans

Positive Features Of Land Loan Rates To Consider

• A co-signer may help lower the interest rate you pay
• Putting up collateral can give you a lower interest rate on a land loan
• Interest rates are very low right now because of the slow global economy
• Many experts predict that interest rates will go up in the next few years
• A better credit score means a lower rate on your loan

Negative Features Of Land Loan Rates To Consider

• If you have bad credit a traditional loan may not be possible, or you may be hit with the highest rate a company uses
• In some cases a land contract form from the seller will help you get a better interest rate on vacant land financing
• A low down payment will usually translate into a higher interest rate
• It has become much more difficult to get financing for vacant land unless your credit is excellent, regardless of the rates charged
• Many lenders now require 20-30% down, and in some cases even more

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