Who Is Financing Land Lot Loans Today?

Who Is Financing Land Lot Loans Today?

Financing land lot loans is not something that most commercial banks are interested in doing, particularly in recent days.  You have no doubt heard the term “toxic assets” repeated in the news over and over again.  Some of those toxic assets included undeveloped acreage.

They are not talking about some industrial waste dump or the location of a toxic spill.  They are referring to assets that they cannot sell, at least for the amount that was originally paid for the property.

These are properties that went into foreclosure.  In some cases the borrowers lost their jobs and fell behind on their payments.  In others, the borrowers were surprised by a large balloon payment and lacked the funds to cover it.

Whatever the reason, the deed to the land returned to the bank.  If the loan was made during the days when money was flowing freely, the down payment may have been very low.  Although it is not accepted banking practice, the lender may have financed the property without a down payment. 

The money from the original loan was paid to the previous owner.  The bank is left with a deed to a property at a time when home buying is down.  So, obviously, the idea of financing land lot loans is not an attractive one, at this time.

On a more positive note for those of you that are hoping to buy some property, there are a number of lenders that survived the recent economic downturn, without tons of toxic assets.  They still have money to lend, providing you have a reasonable down payment. 

What is a reasonable down payment?  Some lenders require 30-35% or even more, depending on your credit score.  Other lenders are currently financing land lot loans for 10-25% down. 

Sometimes, you get a lower interest rate, if you make a higher down payment.  But, many lenders charge higher interest, as a rule, for a non-construction or non-mortgage loan.  In general, it is best to start construction, as soon as possible, so that you can covert from a raw-land note, to a construction loan.

Lenders have different requirements concerning your plans to build.  There are sometimes accessibility requirements as well, which actually protects you.  It makes no sense to buy a piece of property that you cannot get to. 

If the property is surrounded by others, with no access to public streets or roads, there should be a right-of-way through one of those properties that comes with the purchase.  That is something that companies financing land lot loans consider and a question to ask the seller.

Other considerations have to do with utilities; electricity, water, sewage, etc.  On rural properties, those things may not exist, but there should be a way to access them.   

When it comes to finding a lender that is still financing land lot loans, the easiest thing to do is to contact a broker that specializes in them.  Brokers do not work for individual banks or lenders.  So, they can help you find a loan that best suits your needs.