3 Types of Land Loans Clarified

Vacant land loans are designed to provide funding for the purchase of property that is undeveloped. There are a number of different loan vehicles available to achieve this goal, but not all properties will qualify for each type. For residential purposes, there are several different loan types that may be considered appropriate. Three types of loans in particular can enable individuals to purchase land for eventual development.

Vacant Land Loans and Raw Property

Raw land loans are designed to provide funding on property that is completely devoid of improvements. This particular type of financing would apply on a piece of land that has no existing utility lines or even easy access to them, for example.

Raw property loans are considered among the most difficult to obtain. This is due to the fact that raw land is harder to develop and that purchasers tend to have a lower stake in the purchase. Since raw vacant land loans are riskier, lending agents may require more information about plans, access for development and even survey reports to consider writing a loan. They may also request a higher down payment percentage.

Improved Land Loans

Vacant land that has been partially prepared for construction can often look more attractive to lenders. Improved land can involve properties that already have utility lines in place, those that have provable access to lines and also those that are already located on paved roads.

Lenders, such as banks, mortgage companies and credit unions, will still request a vigorous application process for vacant land loans related to improved properties. Still, the likelihood for approval tends to be higher because lenders can feel reasonably assured that construction improvements will be easier to make on this type of property.

Construction Loans

Construction loans for vacant land are often sought out and received by builders. If the intent is to develop a residential lot or several of them, a construction loan might be the vehicle that makes the most sense.

Those who intend to develop land for personal use may not need commercial construction loans, but those who want to develop for resale may benefit from this option. Construction loans will generally call for a fair amount of planning to obtain. Developers will need to provide banks with reasonable assurances that a project will move forward and that the land in question is suitable for doing so. In most cases, construction loans are project dependent.

Vacant land loans can be used to purchase property for eventual residential development. There are a number of lending vehicles that can serve the purpose, but they all hinge on meeting certain specifications.


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