You have always loved alpacas, and now you’re finally ready to get a piece of land and set yourself up in alpaca farming. Or maybe you have found the perfect place to build your dream home by the river. Getting financing on what is considered ‘raw’ land is not as easy as getting a mortgage when buying a new home.
In fact, most major national financing institutions do not get involved in making loans for unimproved land. Financing for unimproved acreage can be one of the most difficult kinds of loans to get.
While you should consider all your options for financing your new land purchase, one possibility for raising the cash you need is to take advantage of unnecessary luxury assets, such as your old diamond jewelry or an expensive collectable timepiece.
Diamond Estate Jewelry Buyers has helped many people raise needed capital to make their dreams a reality. You can sell your portable luxury assets outright to our estate buyers, or perhaps a collateral loan would be more appropriate for your situation. A few items from your jewelry box might be just what you need to start turning that ‘raw’ land into your dream.
Regardless of what avenue you pursue to finance your project, there are a few things to consider when purchasing land. In this article, we’ll examine some options, as well as detail some basic information about land loans.
Have a Plan for Your Land Purchase
One of the best things you can do to secure financing for a piece of land is homework. You should have the land professionally surveyed and appraised, making yourself aware of the potential costs associated with your particular parcel. How is the property zoned? If your alpaca farm is within an area not zoned for agriculture, you’ll have to pursue a zoning variance before anything else.
And what kind of improvements have been made to the land? Is there water and sewer service? You should contact the utility companies servicing the area the land is on to get an idea about how much it will cost to get gas, electricity, water, and sewage systems installed.
A survey will also reveal what kind of access and easements are available for the land–both of which greatly affect the land’s value. Building a road, even a short one, can be a large, unexpected expense.
Once you have done your research on the property, you should prepare a concept package showing your vision for the property, and how you expect to pay back the loan once your plan has been put into action. In addition to any structures you are going to build, be sure to include any improvements, like wells, roads, and power, in a comprehensive portfolio that details your plan for development.
Seller Financing for a Land Purchase
The most common kind of loan for raw land is seller financing, in which the seller acts as the lender to the buyer. You should be prepared to offer a large down payment–20 to 50 percent is not uncommon for these kinds of loans (selling an item or two of fine jewelry can help you obtain the necessary cash for this down payment). Often a seller is anxious to sell the property, giving you the most control in negotiating the terms of the loan, including length of note, interest rate, payment schedule, and balloon payments.
Be sure to show your plan to the owner, along with a schedule for completion or your project. Most seller-financed purchases are short-term, and are replaced by a conventional mortgage loan when improvements are complete. When considering owner financing, have a real estate lawyer draw up the proper documents, and insist on a warranty deed and clear title to the land at closing.
Local Banks and Credit Unions for Financing Land
If the property you want to buy is in an area serviced by a local bank or credit union, your chances of securing a loan are greatly improved. Local banks are likely to understand the real estate market, the potential uses of the land in question, as well as the future growth potential of the community.
Land loans are sometimes called ‘story loans,’ because the lender will consider approval based on the ‘story’ you’ve presented about how the land will be developed. Be ready with a well articulated vision of what you plan to do with the property when you meet with the loan officer. You’ll want to have a fantastic ‘story’ to tell, whether it’s about your dream house or the alpaca farm.
Obtaining a Land/Lot Loan
If you are going to build a house on the land you’re trying to finance, you may try to secure a lot or land loan. Though often discussed together, lot and land loans can vary, based on whether the property is a finished lot in a plotted subdivision or a vacant, undeveloped parcel of land. Generally, the more ‘developed’ the land is, the greater the chances of securing a loan.
Some banks will offer a loan for the period of construction and then wrap both loans into a mortgage once the building is complete. In this case, you’ll need to have your building plans finalized, complete with an outline of all the costs, including any utilities, roads, or other improvements that will be made.
Home Equity for Financing Land
Another way to finance a land purchase is to use the equity in your primary home, (the difference between what your home is worth and what you owe on it). In a home equity loan or a home equity line of credit, you will be using your existing home as collateral to back the loan. Since the lender takes on less risk, and you are likely to get a reasonable interest rate. You may also be able to deduct the interest you pay from your federal income taxes.
You can also use your home equity to apply for a cash out mortgage. In this situation, the borrower takes out a new mortgage in an amount greater than the existing mortgage, plus settlement costs. Equity is extracted as cash, and can be used to finance a new land purchase.
If you would like to leverage your fine jewelry or watch assets to help finance a land purchase or down payment on a mortgage, please contact Diamond Estate Jewelry Buyers today for a free verbal appraisal and immediate cash offer.
Call (858) 454-2200 – Nationwide Customers: Call (800) 956-8505 (Toll Free)
Do you already have your land purchased and now are looking for ways to finance a new house? Please check out our article: How to Get Money for a Down Payment on a House.