The bank that you normally deal with may not offer a suitable option.  They might suggest a bridge loan or cashing in on the equity present in your primary residence. 

Credit unions are sometimes easier to deal with.  But, the interest rates and required down payments might be higher than you had expected. 

Some lenders will loan only 50% of the land’s value, which means that you would have to come up with the rest.  On the other hand, there are some lenders willing to finance 90% of the selling price.  With that kind of disparity, it is particularly important to shop around for the best deal.

Shopping around on your own can be a time-consuming thing.  A better option would be to talk to a broker.  Some brokers specialize in just this kind of “niche” market.  They don’t handle mortgages or other deals popular with the banks. 

Because they serve a more focused area of finance, they can tell you what programs are currently being offered for land lot loans.  That will save you time and money.  There are some lenders that only go through brokers.  So, even finding out what programs they offer would be impossible, without the help of a broker.

Typically, when individuals buy a residence or a vacation home, the house is already built.  All they need is a mortgage.  It may be harder to get financing for a vacation home, than it is for a primary residence, but it is still easier than getting bare land lot loans.  Banks just think the bare lots are too risky.

Your planned use for the property has something to do with the availability of financing programs.  Certain programs are designed for working farms.  Others are designed for hunting property.  Most are for people that are planning to build, at some point in the future.  So, when you call a broker, he or she will ask about what you plan to do with the property.

If you are interested in building a business, in other words, if the property is for commercial use, there are different options available.  Typically, your best choice would be to deal with the bank with which your company has a line of credit.  You may qualify for an SBA guaranteed loan.

The number of lenders making land lot loans has decreases significantly over the last several years.  But, they are not all gone.  There are more choices when the property is to be used for residential purposes.  Fewer options are available for recreational and agricultural properties.

If you do decide to shop around on your own, be wary of balloon payments.  Lenders create balloon payments with the idea that you will be able to obtain a conventional mortgage or a construction loan, once the building begins.  Even the best plans are subject to change. 

You are safer with long term land lot loans and they are available.  No matter what your banker might say.

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.

Vacant land loans are sometimes hard to find, but don’t give up on your dream.  They may be few and far between, but there are still some lenders willing to help.

 If you walk into your bank or credit union, asking about a loan to buy a piece of undeveloped property, you might get an immediate rejection.  Some lenders just don’t make that kind of loan.

 You might not get an immediate rejection.  The loan officer might take your application and pretend to listen to you talk about your dreams, while thinking about the next applicant and hoping that it is something simpler. 

 You may end up waiting for weeks or even months, before finally calling and finding that your package was rejected.  It is the loan officer’s responsibility to present your package to the people that actually make the decisions.  If he or she is not interested in obtaining the loan for you, then your chances of being accepted are very low.

 That is one of the reasons that brokers are more successful at this sort of thing.  They are ultimately working for you.  They have more connections.  If one lender says “no”, they have others to contact.

 Some brokers can even pre-qualify your application for vacant land loans.  So, you can go to the buyer with an offer, knowing that the money is available.  There is really nothing that makes you feel more confident than a pre-qualification letter.  You feel just a little closer to reaching your dreams.

 What makes getting a loan for undeveloped property more difficult than obtaining a mortgage?  It may seem like semantics, but mortgages are for houses, dwellings, a place to live today or in the immediate future.

 A construction loan is for money to be used to build a home.  Once the home is built, a mortgage can be obtained. 

 Vacant land loans are for buying pieces of property that you plan to build on later.  It might be referred to as a pre-construction loan.   

 Nearly all banks do mortgage notes.  Many of them do construction loans, particularly if they work directly with one of the planned communities.  If you plan to do the construction yourself or hire your own contractor, it could still be difficult to get a construction loan.

 Bankers feel that making pre-construction or vacant land loans is more risky.  What if you decide not to build on that location?  What if it is a part of your retirement plans and your plans change? 

 Most people realize that their plans could change, but they also understand their obligation to the lender.  They realize that if they decide not to build, they are responsible for selling the property or continuing to make their payments.  Those are creditworthy borrowers.

 You are probably a creditworthy borrower, too.  But, a bank might not be willing to put their trust in you.  Don’t feel bad.  It is not really about you.  It is simply about the prevalent policy concerning vacant land loans.  A good broker can help you find a lender with friendlier policies.

As a general rule, commercial lenders (the big banks) do not make land loans.  Anyone interested in buying property to build a home, to use for farming or simply to have as a place to get away from it all, has to wonder why it is so hard to get a loan for this purchase.  Here’s the answer.

Commercial lenders, like the banks that take your application over the internet, have what you might call a “formula” for lending.  They mainly lend money for homes and cars.  Those items fit into their formula, because it is easy to access their value.

The value of a piece of undeveloped property is often more difficult to determine based on comparable sales, especially in a “declining” market such as we are currently experiencing.

The actual value of the acreage can fluctuate greatly.  Home prices fluctuate, too.  But, usually, they stay within a range that makes it safe for banks to lend.

In recent years, the banks have had a lot of problems.  They made it “too easy” for people to get a mortgage.  They required very small down payments and were not too picky about people’s credit ratings.  So, while land loans never fit well into their lending formula, it is even worse, today.

It is easy to repossess a car, when someone defaults on a loan.  Foreclosing on someone’s home is harder.  But, sometimes the bank has no choice.  In either of these scenarios, the bank has a piece of property that can be resold, relatively easily.  Usually, they can recover what they are owed.

A piece of undeveloped property is harder to resell.  Lenders feel that borrowers are more likely to default on the loan, because they are not living on the property.  If faced with a choice of paying the mortgage for their primary residence or paying off their land loans…well, you probably get the idea.  The lenders are scared.

The asking price on a piece of property can be hard to understand, unless you are standing in the middle of it.  It just makes sense that a seller would ask more for acreage with a mountain view or a beautiful pond.

But, that is not something that a lender, sitting behind a desk, hundreds of miles away can justify.  So, even the banks that do make land loans will sometimes reject the application, because the price seems too high.

The best suggestion for anyone that wants to make this kind of purchase is to deal with a private local broker, meaning someone in the same state as the land that you wish to buy.  A local bank might be willing to make a loan on an undeveloped lot in a planned community, but not on acreage for hunting or relaxation.

Because brokers have access to a number of different lenders, their chances of getting you approved are better.  There are still a few lenders that offer excellent land loan products and the right broker can help you find the best one for your circumstances.

Call Carol at Peakview Mortgage today to discuss your options  (719) 738-2367

A:    Rates are subject to change on a daily basis and rates need to be determined on a case-by-case basis.  I have the best rates and programs available in the industry and I would need to gather some information from you and to know your short and long term goals in order to quote the best possible rate and program for your wishes and circumstances.

Q.   I’m going to be looking at land to purchase in Colorado.  What programs can you offer me?

A.   With as little 10 percent down, I can offer you a 15-year fixed rate for under 7% – no prepayment penalty and no balloon payment.  On parcels that qualify, I can also offer 20 percent down on a fixed rate land loan for up to 25-years for an excellent rate with FICO score of as low as 620.    And, when you are ready to build, some of these loans can be converted to construction and permanent financing.

Q.   Does your land lender permit seller carry on a portion of the down?

A.    Yes!.

Q.    Can you give me a pre-qualification letter that I can take to my real estate agent so that he/she can submit it with my offer?

A.     Absolutely.  It takes just a few minutes for me to gather information about you and to pull your credit report.  When I have finished gathering the information and determined that your credit is sufficient and that you have assets toward the purchase (down payment) I can issue you a pre-qualification letter and email it directly to your agent.

Q.     What other types of loans do you offer?

A.     I offer land, VA, FHA, Rural Development, Conventional and Speciality programs including and not limited to:

       *97% LTV purchase loans with no MI (Mortgage Insurance)

       *Stated and No Income Verification for owner AND non-owner occupied properties.

       *97 percent full documented purchase loans with 680 FICO credit score

       *Single and Double-Wide Mobile Homes to 95% 

       *Standalone seconds, no cost to borrower equity and HELOC (Home Equity Lines of Credit) loans.

       *Agricultural properties including stock and equipment

Q.     Are you limited to the number of acres you can finance?

A.      No

Q.      Can you finance modular, berm, geodome, solar, straw bale and other types of "off the grid" homes; full time farm operations including equipment and operating loans, Farm Service Agency guarantee loan products?

A.      Yes.

Q.      Do you have other questions?

 A.      contact me via email and I will address your questions.  And if you are ready to move forward to secure an excellent loan for your purchase or refinance, email me with your contact information and we will begin the process immediately.

I am truly passionate about my profession and the result is that nearly 100% of my business is by referral from satisfied clients, trusted financial advisors and the most experienced realtors in the area. My Mission is to guide you through the entire loan process so that you feel confident as you make choices about the options available for your financing strategy. With many years in sales and marketing, a wide range of experience in the mortgage industry and the myriad of loan programs available to suit your particular situation I stand ready to assist you each step of the way. I understand that it’s not just a a piece of land or a house – it’s your prized possession!

Your land and your home are two of the largest financial commitments that you will make in your life and many people view that as meaning just another monthly payment. I can help you realize that your home is truly a valuable financial tool and I will present options that can help you achieve the dreams and plans you envision for your future.

You think about land and home financing only a few times in your life ~ I think about it every day and search the market for new programs and options. It’s your home and your future and it is my profession and passion. I’m ready to work for your best interest!

Feel free to contact me if you have questions at billkappel@comcast.net.

Sincerely,

Bill Kappel

Hi Carol,

Time sure does fly, we think of you often making our dream come true. John and I have been busy getting our new home ready for our wedding day. You have made the buying process so easy for us especially being in another state. You were so easy to talk to and made us feel so comfortable through out the entire loan process.

Love John & Cindy Oetter, Santa Fe Trails, Trinidad

 “Just a note to express our very deepest thanks for all your very valuable help, counseling and guidance with respect to our home first home purchase. We totally mean it when we say we wouldn’t know or can’t imagine how all this would have been possible without your help and counsel. Thank God we were referred to you.”

Rowena and Mark

Kathleen (Bank Loan Officer)