A Land Loan tends to be one of the first types of building construction loans that can be required for a development or construction project.
This can be a bare land loan or land loans for semi developed properties that perhaps already have services and road access in place. If these services still need to be put in place, a separate site development loan may also need to be acquired for the project
Because the loan is real estate based and will be secured by a land mortgage, there are more likely to be options available for financing.
Like most anything else associated with land, the key to securing land financing is all about location.
A property that is located within a developed or semi developed area is going to be more appealing to a mortgage lender than one in the middle of nowhere with nothing going on around it.
There can be quite a range in terms of what amount of financing you can get on any given property, but in most cases, the lender’s interest will fall between 40% and 60% of the fair market value.
One of the potential benefits of trying to acquire a land loan is that your may have a full complement of mortgage lending choices right from bank and institutional lenders to private mortgage lenders.
Banks are going to be more focused on the cash flow generated by the applicant and their credit standing while private lenders are going to focus more on the fair value of the property and how difficult it may be to market in the event of a loan default.
Even if you can qualify for a bank land loan, you may still opt for a private mortgage as the requirements for financing and the length of time required to complete the application process can be substantially less than through a conventional lender. This can be a big issue when you’ve got an accepted offer to purchase, subject to financing and time is running out on the financing condition.
Higher loan to values are potentially possible, provide the property is pretty much at the construction stage or is in a highly active construction area.
In order to best determine what land loan options are available to you for any given piece of property, I recommend that you work with an experienced mortgage broker who has access to both private and bank land financing sources as well as a track record of successful placement.
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