Potential home buyers may not only be perusing homes for sale but also land where they can build a home. While the initial cost may seem high, there are ways to make it more feasible for first-time homeowners. Land loans can often be the perfect resource.
If you choose to build a home, you may have to apply for a land loan. We’ll explain how you can get a land loan in North Carolina in further detail below.
What is a land loan?
A land loan, also referred to as a lot loan, is used to finance the purchase of a plot of land. You can take out a land loan if you want to buy a piece of land to build a home or utilize it for business purposes.
Land loans are sometimes confused with construction loans, which is another type of loan often used by people who want to build a house. So, what’s the difference? If you want to buy a plot of land and build a home right away, you’ll want a construction loan. These short-term loans are intended for prospective home builders who want to start their project immediately and already have everything planned and ready to go.
On the other hand, land loans are a better choice for future home builders who plan to build a home but may hold off for a period of time. If you plan to build within a year or so, getting a land loan is probably one of the best options.
Types of land loans
There are three common types of land loans, including:
- Raw land loan: Raw land is undeveloped land with no electricity, sewers, or roads. Getting a loan to finance undeveloped land can be difficult, so it’s vital that you create a solid, detailed plan for how you want to develop and use the land. This will show lenders you are committed to the project. Additionally, you may increase your chances of qualifying for this loan if you make a sizeable down payment and have good credit.
- Unimproved land loan: Unimproved land is similar to raw land but is slightly more developed. It may have some utilities and amenities but typically lacks electric and natural gas meters. It isn’t as risky as getting a raw land loan but can still be challenging to obtain.
- Improved land loan: Improved land differs from raw and unimproved land because it has access to roads, electricity, and water. It’s the most developed of the land and may come with a higher price point. However, interest rates for improved land are significantly reduced compared to raw land loans and unimproved land loans.
How to get a land loan
The easiest way to get a land loan is from a community bank or credit union near the land you want to purchase. As with any loan, you will need to prove you have a good credit score and explain how you intend to use the loan, which can vary depending on what type of loan you’re interested in.
You should highlight aspects of the land that need to be checked, such as zoning, land-use restrictions, surveyed boundaries, and access to utilities. Providing these factors upfront can give lenders an idea of how risky the loan might be.
Once these factors are considered, the land loan rates and obligations can be issued. Interest rates tend to be higher than standard mortgage rates because they’re riskier. However, you may qualify for lower rates if you have a good credit score and a low debt-to-income ratio.
After the loan rates have been determined and approved, you will need to make a down payment and have a plan to pay back the loan at the decided interest rate.
Secure your North Carolina land loan with Mortgages by Jill
Are you planning to apply for a North Carolina land loan? Let Mortgages By Jill help you get the funds you need to secure your land and start building. Apply for a loan now or contact us for more information.