Has your dream been to own your own land? You can find a wealth of information about how to purchase a home. In fact, Lisa Cogdill Realty has an article on that subject here, but today we want to go beyond just financing a home. One of our frequently asked questions is, “Can you finance land?”
Is financing land the same as a mortgage?
The borrowing process of capital for land is different than a mortgage of a home.
Financial institutions can easily place value on homes or businesses. However, placing that value on a parcel of land is more challenging. Financing land also holds a higher risk factor for banks and other lenders because they must determine the funds that they could recoup if you default on the loan.
Determine the type of land you wish to finance.
Before you ever set foot inside a bank determine the type of land you want to purchase and why.
Do you want to build a home on it or use it for farming?
Typically, land parcels fall into two categories in the eyes of lenders, raw (unimproved) land and improved land.
- Raw Land is land that has not been touched or influenced by humans. This land is harder to finance with a lender because it is harder to sell later if you default on your loan. You can improve your odds by providing your chosen lender with the ideas in which you plan to improve upon the land.
- Improved Land is land that has had some work done to it. There can be varying degrees of work done to improved land such as roads or driveways previously built, sewer or septic systems in place, lot clearing and more. This is the best kind of land to buy if you plan to build a home on it. Lenders will be more likely to finance improved land in areas where developments are trending.
There are a lot of things you can do to be prepared before you seek assistance from a financial lender.
How to prepare to finance a parcel of land or lot?
The more prepared you are before you go into a bank the more likely a lender will finance the land you wish to own. Below you will find the information you will need to gather as you work through the process. You can gather this information yourself or enlist the aid of a real estate agent.
- Land Survey-A land survey will show you exactly where the boundaries of a lot are. This is not always easy to see just by visiting an area.
- Property Easements-There is a list of people and agencies that will have rights to enter your property. These can be utilities and townships, etc. Knowing where they may have rights to build sewer lines or power lines can help you know where you can and cannot build on your land.
- Title Search-this can help you determine what easements are attached to your property as well as give you a history of the land and how it has been used.
- Zoning Laws-these are laws that have been set in place that attribute to what you can and cannot do your land. They fall within residential and commercial purposes.
- Flood Hazard Risk-determining the risk for floods is not only important for your insurance company, but lenders also want to see this. The risk factor for flooding will impact where you can build and if a lender will be willing to lend you the money you need.
- Appraisal-having a professional appraisal will give your lender an idea of the current market’s land value. You may need to have a real estate agent create this for you.
Don’t Be Discouraged
Overall, it may be a bit more difficult to get financing for land but that does not mean you should get discouraged. You just need to do your homework in advance and be fully prepared before you seek financial assistance. Although you can obtain all the information needed yourself it can be overwhelming. That is why Lisa Cogdill Realty is here to help you through the process.
Lisa is a native of Western North Carolina, so she has in-depth knowledge of the land here. She can help you find the land you wish to purchase and provide you with everything necessary to make your dreams a reality. Don’t hesitate to contact her today!