Things you have to know before you decide to purchase land

The process of getting a land loan is usually trickier than getting a mortgage. Remember that when you decide to purchase land instead of an existing house, it means you want to start building from scratch. In such cases, you need to get a loan to buy land. This can cause some problems compared to getting a normal mortgage.

This is because there is no house that can act as collateral for the loan and it’s impossible to purchase land if you don’t have available cash. This is the reason why there are usually several challenges you can experience when you decide to get land financing. This page discusses the things you have to know before you decide to purchase land.

Land fundamentals

There are many challenges that you can face when you decide to purchase land, especially a raw plot that is unclearly defined. Therefore, to make sure that you can use the land as desired, you have to research several things so that you can plan accordingly.

Firstly, it’s necessary to clarify what the potential purchase involves. This is why it’s crucial to mark the boundaries. This means you must get the surveyors to mark the boundaries and have the documents that you can present to the financial service provider. Besides, you need to check land-use and zoning restrictions.

It’s also a good idea to consult the local planning department to know what they intend to do with the immediate neighborhood in the future. For example, a new park in the neighborhood can increase property values in the long run while a sewage treatment plant can reduce the property values.

It’s important to have access to utilities for residential lots. You need to have sewer, water, electricity, and many more. This can save you a lot of money, time, and problems. Likewise, public road access tends to be a crucial issue because you need to have easy access to a public road. Because purchasing land is usually different from buying a house, you may have to work with real estate agents who specialize in these types of transactions.

The planned use of land

Finance service providers don’t like to take risks, so purchasing land to further develop it tends to be a riskier activity. But depending on how you intend to utilize the land and when development can happen, the financial service provider can assess the risk to your land loan.

The terms of the land loan, such as interest rate and down payment can usually depend on what you want to use the land for. This is because it is directly related to the risk exposure of the lender. As a result, it can be trickier to get a land loan than to purchase an existing house because a house offers the lender tangible and immediate collateral. But building a house immediately is usually less risky than choosing to develop the land in the future because many variables can prevent development in the long run. Remember that lenders can have unique terms and limits for these land loans.