Mortgage Loans for Land, Acreage in Oklahoma
If you’re in the market for mortgage loans for land or acreage in Oklahoma, it’s important to understand the different types of mortgage loans available. One such type of mortgage loan is the land loan. A land loan is a mortgage loan specifically for purchasing property that isn’t a home, such as vacant land or acreage. In this article, we’ll discuss what a land loan is, the difference between a home loan and a land loan, the different kinds of land loans available, and how land loans work.
What Is a Land Loan?
Also known as a lot loan, a land loan is a type of mortgage loan used to purchase a plot of land or acreage in various stages of development. Typically, people will purchase land with the intent to build on it someday (perhaps planning their dream home) or otherwise use it for agricultural or conservation purposes.
What’s the Difference Between a Construction Loan and a Land Loan?
While these two loans are somewhat similar, they are often mistaken for each other—so it’s best practice to know your intentions behind purchasing the land when it comes time to decide which type of loan is best for your circumstances. For example, if you are planning on immediately developing the land or building on it, you will likely want a construction loan. Land loans are better for longer-term projects that may not even be fully formed yet—and may not even require much construction.
What Are the Different Kinds of Land Loans?
Once you’ve determined that you’d like a land loan rather than a construction loan, you will have to decide which type of land loan is the most appropriate fit. There are three main types of land loans, depicted in the following passage.
Unimproved Land Loans
This type of loan is best reserved for land that is somewhat developed that may even have amenities or utilities associated with it—but stops short of having a phone box, natural gas meter, or electric meter. Typically, for an unimproved land loan, you will need to be able to put 20% down or more and have a high credit score—as these types of loans are considered relatively risky by the bank. (Risk, in this instance, is determined by the lender’s likely return on investment—so if a plot of land is minimally developed without much plan or budget for building on it, it is considered a riskier investment.)
Improved Land Loans
As you may have guessed, loans for this type of land involve plots that have access to running water, nearby roads, electricity, and gas. This type of loan is reserved for land that is the most developed and is generally obtained in a similar manner to a mortgage loan. While this type of loan may share similarities with mortgage loans, they are still harder to procure than most mortgage loans as the purchase is still considered relatively risky.
Raw Land Loans
In the instance of a plot of raw land, a prospective buyer will be looking at completely undeveloped land that has no amenities like sewers, water, gas, electricity, or even roads. Considered the riskiest of all the land loans, this type of loan requires a definitive, detailed plan for what you intent to do to the property and how you intent to develop it. This helps to alleviate some of the associated risk for the lender; however, due to the nature of these loans, they often have higher interest rates and higher down payment requirements than other types of land loans.
Is It Hard to Get a Land Loan?
Obviously, some land loans are harder to get than others. Generally speaking, it is considered more challenging to procure a land loan than it is to obtain a mortgage loan—largely due to the risk associated with the purchase. Anything you can do to lessen the risk by way of providing planning and budgeting for the developments you will be implementing after purchasing the plot of land.
How Do Land Loans Work?
Because land loans can be so much trickier to get than mortgage loans, you will have to do some “homework” before applying to ensure a higher likelihood of success. Three things you need to keep in mind when it comes to applying for a land loan include:
- Zoning: When you find a plot of land that you’re interested in, check with the local legislation and city planning to see how the surrounding area is developing. This can greatly impact the risk associated with a land loan, as certain developments will increase value and others will decrease it.
- Boundaries: You will need to have your land surveyed so your exact boundaries are clear and ready to put in front of a potential lender.
- Utilities: If your land is without utilities, how will you plan to develop it?
What Will I Need to Determine Before Applying for a Land Loan?
Before applying for a land loan, you will need to decide what you intend to do with the land. If you are planning on building immediately, you may be better off with a construction loan, for example—but other land might need further developing before it can be built upon. Also, it could save a lot of headache (and potentially a lot of money) to see if the seller is willing to finance the lot rather than going through a lender. This means you can negotiate all the terms of the loan and have things finalized through an attorney for clarity and more control over the process.
Mortgage Loans for Land, Acreage in Oklahoma
Now more than ever, land is a premium—but investors are going to want to know that loaning you their money is a worthwhile investment. If you’re looking for mortgage loans for land or acreage in Oklahoma, you may consider looking at smaller banks or credit unions for this type of loan, which may be more willing to work with you than larger corporate banks. Whatever piece of land you’ve got your eye on, the bottom line is you need to present the lender with a plan for development and a reason to invest in your purchase.
Thinking of buying land in the Sooner State? Contact Gain Mortgage Group today!