What are lot loans?

When homebuyers are on the market for a home, they might decide the best option is to build one. This gives them the most control, since they can build their home the way they want. But there are costs associated with it. Homebuyers will have to determine the type of financing they want to pursue. Are they looking to build right away, or are they a future homeowner? If they are looking for land to build at a later point, this is where lot loans come in, and what we will discuss in this article.

What are lot loans?

Sometimes referred as land loans, lot loans are used to finance the purchase of land. The type of loan is determined by how the buyer plans to use the land, whether that be for commercial or residential use. The borrower will consult with a lender that offers these types of loans and they in turn will guide the home buyer through the process.

Not to be confused with construction loans, lot loans are strictly for the land. Construction loans are used for the actual build. If buyers choose to build a home and they have their finances in order, construction loans are the quickest and most efficient route possible. Lot loans are ideal for future homeowners.

Types of lot loans

• Raw land
• Unimproved lot land
• Improved lot land

Raw Land: This is when the lot is completely undeveloped. There are no utilities, amenities, electricity, or gas. Financing for this type of loan can be difficult, so homebuyers will have to plan accordingly. Lenders will want to know how home buyers plan to develop the land. A large down payment, somewhere around 20%, and a good credit score are ideal in order to secure funding.

Unimproved lot land: This is when the lot is a bit more developed. Some utilities might be installed, but the land will lack electricity and gas. Finding a loan for this type of land won’t be as difficult as raw land, but down payments and interest rates will be higher than other mortgage loans.

Improved lot land: This is when the lot has access to amenities such as electricity, gas and water. It will also have access to roads. Down payment and interest rates are the most lenient for this type of loan. Although because it is more developed than raw and unimproved land, the overall purchase may be more successful.

How to acquire lot loan financing

Home buyers can find a loan the same way they would a mortgage loan. They will consult with an approved lender to secure the correct financing. The best way to go about acquiring a lot loan is to have a large down payment and a good credit score. If you have any further questions, the people at Starboard Financial can help.

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