Pros and Cons of Land Loans

land loan

Are you planning to build your dream home but don’t have the plot of land to construct it in? How about the cost of the purchase? Then, why don’t you try applying for land loans?

This post contains a few things you should know about land loans.

What is a land loan?

A land loan is a type of finance that helps a buyer purchase a plot of land either for building a home or for commercial purposes. The type of land loan you can expect to get depends on the land’s location and its kind.

Raw Land Loan

This type of loan covers raw or undeveloped lands with no essential utilities such as electricity, sewers, or roads. Even though raw lands are cheaper, it might be costly in the long run since you have to pay an extra fee to install electrical lines, sewage canals, or make roads.

Also, raw lands have higher interest rates. Before applying to the lenders, create a detailed plan on how things will work out, a substantial down payment, and a strong credit score. This way, the lenders will see how committed you are to this project.

Unimproved Land Loan

Unimproved lands are a more developed lot than raw land. The area may contain utilities and amenities but may also lack utilities such as electric meter, phone line, and gas meter. Although unimproved land can be less complicated than a raw land loan, you should still make a detailed plan on how things will work out, a huge down payment, and a strong credit score before applying to the lenders.

Also, unimproved land loans have lower interest rates and down payments, but there is not much difference from raw land loans.

Improved Land Loan

Improved lands are the most developed land compared to raw lands and unimproved lands. In addition, basic utilities such as electricity, sewage, water, and roads are accessible. The most significant benefit of this financing is that the interest rates are lower than the two other types.

Nonetheless, a detailed plan on how things will work out, huge down payment, and substantial credit score before applying to the lenders can still be helpful.

Short-term Land Loan

The most practical type of this loan can also come in the form of short-term financing.  A short-term land loan is the most appropriate for those who want to buy improved land. Aptly called short-term land loans, these financing products can last up to 24 months before you start saving for another one. Many lenders offer flexible payback options that would allow you to pay off your debt faster than you expect. If you’re looking to finance your purchase in a short amount of time, you can reach out to https://www.bridgingfinanceloans.co.uk/ for the best rates and quick approval.

Pros and Cons of Land Loans

After considering the type of loan to apply for, you also need to consider the best and worst-case scenarios to avoid problems in the future. Make sure that the financing aligns with the things that you want. Here are a few positive and negative points for you to go over:

Pros

The most significant benefit is that you have the opportunity to choose what you want for your dream house. You can also use it for commercial purposes. It is also cheaper than already developed land. Plus, you can secure land first if you want to change your mind about making it for commercial use rather than for your home.

As long as you’re imaginative, determined, and have a vision for the area’s future, these loans are a perfect choice for you.

Cons

Looking for the right lending office will be difficult. Lenders tend to be sterner regarding these loans, so having an excellent credit score and large down payment helps. Your lender may ask for higher down payments and interest rates.