How to Finance Vacant Land

by / Monday, 10 September 2012 / Published in Blog

By LaoA, eHow Contributor

Financing vacant land poses a high level of risk to potential lenders. They fear that the lack of a structure may make buyers more likely to let the land go into foreclosure if loan payments become a burden. Lenders tend to require higher down payments for land loans as a result. Vacant land can be used to build a church, playground, or home for a family to reside. Before you can start the building process, obatain a vacant land loan from a bank or lender.


o 1
Ask the seller to provider owner financing. Know that in these types of transactions, both parties involved negotiate monthly payment schedules and other terms of the sale. Contact a local title company to provide you with a search of the title. Once you are sure the land is free from any liens or other issues which would prevent it from being sold, conduct the closing at a title company or lawyer’s office.

o 2
Search for a bank in your community. Start with the smaller, local banks. Ask them if they would be willing to finance your purchase. If you have an account at a community bank, remind them that you have been a customer for some time, and would like to go to them for all of your financing needs. Understand that these types of banks normally charge slightly higher rates of interest than their larger counterparts. Consider going to the credit unions in your area, if you are not able to achieve success with community banks.

o 3
Find a construction-to-perm lender. These lenders provide loans which will fund both the purchase of the vacant land and the construction costs for whatever building you have planned. Obtain financing for the land when you close the loan. Convert the loan into a permanent one, once the building is completed. Understand that the terms on a loan such as this will be up to 2 percent higher than the current prime rate.

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