How a Land Loan Differs From Buying an Existing Home

While the process of getting a land loan is similar to getting a home loan, there are some crucial differences that buyers should be aware of. Here are some of the key ways that getting a land loan is different from buying a home that is already built:

  1. Land loans are riskier. When you purchase a home that is already built, the lender can assess the property’s value and condition to determine the risk of the loan. With a land loan, there is no home to assess, making it riskier for the lender. As a result, land loans generally have higher interest rates and require a larger down payment.
  2. You may need to develop the land. When you purchase a home that is already built, it’s move-in ready. With a land loan, you’ll need to develop the land, which can be a costly and time-consuming process. Depending on the property’s location and condition, you may need to clear the land, install utilities, and obtain permits before you can start building.
  3. You may need a construction loan. If you plan to build a home on the land, you’ll need a construction loan in addition to a land loan. The construction loan will cover the cost of building the home, while the land loan will cover the cost of the land. It’s essential to work with a lender who can offer both types of loans and help you navigate the process.
  4. The loan terms may be different. Land loans typically have shorter terms than home loans. While home loans can have terms of 30 years or more, land loans usually have terms of 10-15 years. This is because lenders see land loans as riskier and want to minimize their exposure.
  5. You’ll need to have a solid plan. When you apply for a land loan, you’ll need to have a solid plan in place for how you will use the land. Lenders want to see that you have a clear vision for the property and that you have the resources and expertise to develop the land and build a home on it.

With the right plan in place, a land loan can be an excellent way to build your dream home and create a place that you can call your own. The beauty of building on your own land is that you can customize your home to meet all of your specific needs. You also may be able to pay off the land and build when the timing is right. Reach out to us at Moving Montana if you would like to talk through the logistics of a new build from a real estate standpoint. We have an appraiser, lender, and several agents on staff to help advise you.


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