Getting an Arizona Land Loan is not as simple as securing a mortgage. There are many details you should know before you seek financing for a land purchase.
A Land Loan is used when you are interested in purchasing a lot that does not have a structure on it yet. As with typical home Loans, you can secure these Loans from a bank, savings and loan, or a private lender. Regardless of the type of lender, you will need to have good credit, and the land value must be in line with the purchase price. But unlike the rather simple evaluation to determine the value of a home or building, accessing the value of land can be more challenging.
Most bare land has little value, as compared to what the value would be if it included a structure. This makes an Arizona Land Loan riskier for the lender. Because of the increased risk, or maybe decreased potential for resale is a better term, lenders tend to increase the down payment required for the loan and to charge higher interest rates. The higher down payment is a way for the lender to be sure that there is always equity in the land, and that it can be sold for a high enough price to cover the remaining balance of the loan, should you default.
There are three different types of Arizona Land Loans, which include raw Arizona Land Loans, lot Land Loans, and construction Loans. Each of these Loans has a different purpose and different qualification requirements. You will also find that different lenders can have slightly customized requirements for their Land Loans. As with most Loans, you will need to demonstrate excellent credit, an acceptable debt to income ratio, and a consistent income that will allow you to cover the payment on the loan.
Because of the increased risk of Loans on land only, interest rates can vary from about 4% up to around 6%, depending on the specific type of loan. In addition, the length of the loan will have some impact on the interest rate. The lowest interest rate is traditionally offered on a 10-year fixed-rate loan. The interest rate increases slightly as the term extends to include a 15-year, 20-year, and 30-year fixed rate. You will also notice that rates on a construction loan are higher than a raw loan and that lot rates are the most affordable interest rate.
There are certain lot features that lenders will look at when evaluating your loan request. The boundaries of the lot are essential information to the lender. Having the lot surveyed accurately is a bonus to most lenders. In addition, a lot that already has utilities will be more attractive to a lender as the lot holds more potential than just bare land. All lenders will also want to know about any zoning restrictions on the property. Having this information included in your loan request will be helpful to the lender during his or her evaluation process. And that is sure to increase your chances of getting your loan request approved.
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About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.