Land Loan Mortgage Information
Land loans or land mortgages are designed for borrowers who are planning on building a home but aren’t ready right now. They are planning on building their own home in the near future and at that point will be looking for a construction loan.
Mortgages on Land loans are usually not as easy to obtain as a mortgage loan on a home. Usually interest rates are also slightly higher and financing terms are not as flexible. Many times interest rates will be 2% or 3% higher than a home mortgage interest rate and you won’t be able to get a 30 years fixed interest rate land mortgage. Many lenders will also require a down payment of at least 20%.
The reason for the restrictions is because the loans are much riskier for the lenders. The loan’s collateral, the vacant land, isn’t currently being used for anything. If you don’t have a house on the property you’re not as motivated to make the monthly payment. If the land gets foreclosed on you don’t really lose anything except what you’ve paid into the property.
The good concept of purchasing land is that the’re not making more of it. More than likely land will only appreciate in value as time passes. Purchasing land now may be the smartest investment you can make.