Lenders consider investment land loans riskier than property loans because the it is not being used. This makes poor collateral, because the owner can more easily walk away from the loan and leave the lender stuck with the land. This is the reason why interest rates and down payments tend to be higher on investment land loans. The type of investment loans that are made highly depends on the property, what the buyer’s intent is toward using that land and how long it will take the buyer to have the work on any project there completed.
Raw or unimproved land that is being sold without any plans for improvement tends to be the most difficult for which to procure investment loans. The lenders tend to view these parcels as speculative investments. Unimproved land does not have any type of added improvements such as structures, streets, utilities or sewers. An investment loan on raw land will usually have a substantially higher down payment and higher interest rate than a piece of land that has the aforementioned amenities. Some lenders will require as much as a 50 percent down payment before they will make investment loans. The smart buyer will shop around until he or she can find a lender who will go down to as low as 20 percent. This tends to be the local lender who knows the property and area, rather than a lender from a different area.
Those who seek investment land loans with the intention to improve the land right away should make certain that the services that they will need are actually available. A staked survey of the property should be made, because access to the property and easements will tend to influence the value of the property. Access can, in fact, stand in the way of getting investment loans altogether. Under certain circumstances refinancing their home mortgage and cashing out will enable them to buy the land in more advantageous ways than investment land loans will. Their current property can secure the equity loan, and this creates less risk to the lender. Taking this route will often mean a lower rate of interest.
Land loans usually have from ten to fifteen year maturities, much the same as home equity loans. The interest on one’s home equity loan may result in a tax deduction on one’s income taxes. The expense for interest on investment loans might be tax deductible, but only if the land is retained as an investment. It is a good idea for anyone considering land loans to have a sit down with a tax advisor if he or she is genuinely interested in taking this type of interest deduction. An advisor might suggest approaching a credit union about land loans. Interviewing mortgage brokers is another viable option for investment land loans. In certain circumstances, these interviews end up being the best choices over all the others.
