How do you pay for the perfect piece of land where you want to build your dream home? Can you mortgage land? Is there such a thing as a land loan? Can you finance a land purchase with a HELOC (Home Equity Line of Credit) or Home Equity Loan?
Mortgages are for financing existing or new homes. Construction loans support building a home. When purchasing land, neither of these financing vehicles applies. However, there are several financing options available depending on the type of land being purchased:
- Is the land for farming or other agricultural purposes? If so, a USDA-subsidized loan, such as a farm loan, may be an option. In North Carolina, the Series II Beginning Farmer Loan Program may offer the necessary financing.
- Is the land for commercial purposes? If so, an SBA/CDC 504 loan may provide the needed funding.
- Is the land for a future dwelling? If so, a Land Loan, HELOC, or Home Equity Loan are the financing vehicles.
If you do not have enough equity in your home for a HELOC or Home Equity Loan to cover the cost of the land acquisition, then you need a land loan.
Land Loans
Land Loans differ from personal loans or mortgages as the government does not back them. As a result, financial institutions have different rules for issuing land loans. Some institutions, such as Welcome Federal Credit Union, will finance up to 90% of the selling price or appraised value, whichever is less.
Because land loans are riskier than traditional loans, they tend to be about 2% more than traditional mortgages. To qualify for a land loan, a downpayment of 15% or more and a high credit score may be required. Repayment periods can vary between 5 – 20 years. Local lenders can often provide the most flexible terms and offerings. WFCU offers flexible repayment options and stress-free closings.
Conditional requirements specific to the plot of land itself may also apply. Land conditions may include the following:
- Being located in the same state as the lending institution.
- Having no existing structures on the property.
- Being used for residential purposes only.
- Passing a perc test or having accessibility to city utilities.
- Being surveyed and recorded with the local government within a specific period of time.
- Accessibility to a maintained road or showing an easement to such a road.
Strategic Land Search
If you haven’t found a house you love and are considering buying land and building a home of your own:
- Work with a real estate agent who has land experience and is an Accredited Land Consultant Realtor.
- Work with local community lenders as they are most familiar with the land value in their area.
- Work with a lender who will personalize a plan to fit your needs. Welcome Federal Credit Union is such a lender.
Testimonial
“In an individual consumer market with limited land loan options, WFCU provided us with knowledgeable, flexible, and exceptional service. WFCU was extremely resourceful in meeting our unique needs and circumstances and they were able to customize a loan program that met our deadlines and repayment capabilities. Their consistent follow-up and guidance brought our stress level down to nearly ZERO as we closed on time despite delays caused by outside influences. We weren’t just another loan to WFCU, we were a welcomed customer.”
-Sorelis and Herbert R
Stake your claim to the land for your new home by contacting WFCU. You are always Welcome!