Purchasing land is a big decision. Most times, you will need a loan from the bank to help you cover the price, and you’ll be required to pay the money back with interest. Apart from banks, other governmental entities offer land loans. This allows you to choose between the two depending on your preferences, interest rates, or accessibility.
A land loan is a type of loan used to purchase land. You could use a land loan to buy an empty lot or raw land. You could buy the land to develop it for commercial purposes or use it to build your home. Some people take a land loan than a construction loan later, while others take both loans simultaneously.
The 5 Best Banks for Land Loans are:
Getting a land loan can be easy or hard to get depending on how you want to use the piece of land and the location of your land. Land loans aren’t hard to get. You will use the same procedure as a typical loan. Some lenders are skeptical about giving land loans to purchase vacant land, as the land’s price will drop if the economy isn’t good. Just because there could be hurdles in getting the loan doesn’t mean that it’s impossible to secure it.
Land loans are quantified in three categories; raw land loan, unimproved land loan, and improved land loan.
Raw land loan– Raw land is undeveloped land without electricity, roads, or sewers. When getting a land loan, a raw land loan can be the most challenging to acquire. To successfully get a loan for such land, you need to create a detailed plan of how you plan to develop the property. You must also have good credit. These will increase your chances of getting a loan.
Unimproved land loan– Unlike raw land, unimproved land tends to be a little developed. It typically contains a few amenities and utilities. Even though unimproved land isn’t as risky as raw land for the lender, it can be hard to get funding. To get a loan for such land, you will need a huge deposit, good credit, and a detailed plan of how you will further improve the land.
Improved land loan– Improved land has amenities like electricity, water, and access to roads. Improved land is more expensive to purchase than all other types of land. The interest rates and down payments for improved land are much lower than the rest because it is the safest type of land for most lenders to loan you money to buy.
Article Contents
Do Banks Give Loans for Land Purchase?
A land loan is easier to get from a bank or credit union close to the area of land purchase. What you’ll be doing with the land determines the type of loan you will get from the bank. For example, if you’re going to build your home on the ground you’ve purchased, you will get a loan from the U.S Department of Agriculture (USDA) and other government entities that help in funding such loans.
Banks are careful when giving land loans, especially if they are undeveloped or a lot. Banks find it difficult to give out land loans because these are a bit risky. But if you have a good credit score, the bank won’t hesitate to loan you.
For example, you could purchase raw land and leave it lying around for a couple of years and default from paying the loan. To the lender, that piece of land lying around is not valuable as it can’t sell at a reasonable price if the economy fluctuates in a lousy direction. Unlike when paying a mortgage, the bank can come and sell the house or take it back if you default.
Which bank is best for a land loan?
The U.S. bank is the best land loan lender available. They have low payment interest and can fund you if you need to buy a lot. If you need to develop the lot you’ve purchased, they also will offer to fund it. You can apply to get both types of funding simultaneously or buy the land, then apply for a construction loan later on. All you’ll need to do is find a good contractor from your friends and family, or you can ask the bank to suggest one.
The bank offers construction money in specific quantities according to the progress of construction. Your credit score will primarily determine how much money the bank can lend you and if you will get the loan.
Where in Texas Are Most of the Ranches Located?
Most ranches in Texas are located in the Great Plains region. This is due to its capacity to produce vital crops such as wheat and sustain cattle. The flat spans of ground that stretch in this area provide places to grow.
Though rainfall tends to be scarce in this region, there are bodies of water that provide hydration. Ranchers take care to provide for the animals that they raise. Much cattle comes from that particular area. A close second is the Coastal plains. In both, the flatland is a huge factor.
The 5 Best Banks for Land Loans
Land loans can be challenging to acquire. There are few banks out there that can help with it. The government also offers loans that can help you get a piece of land and build if you’re ready to do so at the moment.
1. U.S. Bank
The U.S. bank offers the best land loans. Their land loans are for vacant lots. You will be required to give a 20-30% down payment. When getting a land loan from them, you don’t have to sign up for a construction loan. But, if you need a construction loan, you will get it from a U.S bank.
If you would like to construct your home on the land, the U.S bank offers this option too. The constructor will receive money as the construction progresses. To get a home construction loan, you will have to find a builder, either from friends or people you trust. You should also check their credentials to make sure they will do a good job.
Ideally, you could also request a personal loan from U.S. bank and use it to finance the land you want to purchase. When you ask for a personal loan from the U.S Bank, you could either take one-time funding or partially take the money in your preferred quantities.
The benefit of taking a personal loan from them is that it offers fixed interest rates and set monthly payments for the entire time you’ll need to pay the loan.
2. United States Department of Agriculture (USDA)
USDA construction loans can act like three loans put into one. If you want to buy land and build a primary residence, you can ask for a loan to help purchase land and construct it. Also, when you qualify for the loan, you aren’t required to put in any down payments, which is a plus to many people.
A USDA construction loan helps people have the houses of their dreams even when they don’t necessarily have the money to fund that dream house. The interests are low, and you won’t feel the pinch since you’ll have a home you’ve constructed as you desire.
The USDA has two types of loans; section 523 loans and section 524 loans.
- Section 523 loan is for borrowers who want to build their own homes.
- Section 524 loans, on the other hand, allow you to hire a contractor to build a house for you.
These loans are for low to moderate-income families. They have meager interest and depending on your situation. You might get a land loan without a down payment.
If you want to use the land for a business, you may qualify for a U.S. Small Business Administration. Their purpose is to help fund business people so they can progress with their construction. Their interest rates are a bit favorable because these are business properties and need all the help to get on track.
3. United Credit Union
United Credit Union (UCU) will help you transform a vacant lot or raw land into your dream home or for work purposes. You can use the loan to purchase land and later on sell it when it has more value. With UCU loans, you get to choose flexible loan terms and get affordable loan interest.
After you’ve built a house or business on the land, UCU allows you to pay affordable interest rates. Applying for the loan can be a bit tedious, and UCU offers help by putting an assistant by your side to help you throughout the process. The assistant will advise you to make the right decisions when you’re stuck or need someone to consult.
UCU also offers an option to buy land if you want to use it in the future. You can purchase land and let it sit until you’re ready to bring your dream home to life.
4. Wells Fargo
Wells Fargo is a good bank if you need a construction loan. They have a couple of options you can choose from when you need a construction loan. Wells Fargo has an advantage because you can lock down your interest rates to prevent them from fluctuating.
The disadvantage of Wells Fargo is that you will need another way to fund the land purchase. The bank will only accept to offer loans for construction.
Wells Fargo can offer a loan of between $3000 to $10,000. The bank doesn’t provide a minimum credit score to get a loan, but the better the score, the higher the amount of money you can borrow.
5. LightStream
LightStream is a safe bank since it allows you to loan money for a personal need you have. Their primary specialty is financing home improvements. When taking a loan from them, you don’t have to put your residence or land as collateral.
Their loans are also good because they have longer repayment terms available, allowing you to pay your loan slowly as you develop your land. Depending on your credit, you can get between $5000 to $100,000.
After the loan approval, you will get the verification of the money within the same day. The better your credit score, the least amount of interest you will be charged on your loan.
Final Words
Land loans are essential when you’re thinking of securing land to build your business, do farming, or build a primary residence. By acquiring a land loan, you won’t have to foot the whole bill. It can be not easy getting all cash when in need of purchasing land, and that’s where these land loans come in handy.
When buying land using a loan, make sure you also improve it as soon as you can so it can increase in value rather than deflate. If it’s a business you want to establish on that land, it would be safer to build it earlier as it will help bring in the funds to pay what the bank requires of you. It isn’t easy paying a land loan from your pocket, especially if the land is for business purposes.
