What Are Land Loans?

Some people are interested in buying land instead of an existing home, whether it is the preference of building your dream home or buying property in an area you prefer, when it comes down to financing this endeavor, you may find that obtaining a mortgage loan is more difficult than if you were house-hunting in a newly constructed neighborhood.  This is because when you purchase land by itself, there isn’t much in the way of collateral that can easily be off loaded by a traditional mortgage lender, like your bank.

Instead, your better option is to seek a land loan from a private lender, including American Dream Home Mortgage Company.

What Is A Land Loan?

Land Loans are exactly that – loans that are offered for the purchase of land. The loans can be used to purchase property you plan to develop commercially, build a home on, or to leave as is as an investment opportunity.

Typically, these types of loans require a substantial down payment and will have higher interest rates – regardless of the intended purpose of the property.

How To Finance Your Land Purchase

Land loans may not be as common as a traditional home mortgage but there are still several places you can obtain one, if you meet the requirements set by the lender.

Private Mortgage Companies

American Dream Home Mortgage understands that there are several ways to achieve your dream home – one of which may be by purchasing a piece of land by itself. We offer several land loan options, contact our office to see if you qualify. You can read more about the available land loan options below:

United States Department of Agriculture (USDA Loan)

If the property you are interested in is located in a “rural” area as determined by the USDA, then you may be able to finance your land purchase with a USDA Loan. These loans are designed to encourage buyers to seek property outside of the metropolitan areas and help those with low to moderate income find affordable financing for land.

There are two types of USDA Land Loans” Section 523 and Section 524.

Section 523: Finances the purchase of land on which you plan to build your own home.

Section 524: Finances the purchase of land on which you plan to hire a contractor to build your home.

Small Business Administration (SBA 504 Loan)

This land loan is designed for business owners who want to start or expand their business and need to buy raw land in order to do so. An SBA Loan does not finance the full value of the land, but rather provides only up to 40%. You can seek a second loan from a private lender to fund an additional 50% of the property cost, but you will have to put at least 10% down in your own funds to qualify.

Home Equity Loan

If you already own a home and are considering purchasing property as an investment or to build a second home, you could use a Home Equity Loan to do so – if you have the equity invested into your primary residence. Typically, you will need to have at least 20% of your original mortgage loan paid off to be eligible for a Home Equity Loan.

Consider Everything

There are many more options still for buyers looking to purchase standalone property – many of which are simpler or at least simplify the process between financing the purchase of the land and financing the building of your home or business. Such loans include Construction Loans, Permanent Loans, Commercial Property Loans, and more.