Vacant Land Lending or Land Loans share many similarities with mortgages. Both are forms of financing used to obtain property; however, unlike a traditional mortgage, there is no home to use as collateral. Many homebuyers and investors consider this option if they have the expertise in building homes from scratch.
Lenders like Mortgage Equity Partners will always consider the state of the property before approving a loan. If there are issues with the infrastructure, local ordinances, or existing structures that need to be removed, qualifying for the loan may be more challenging.
Different types of land loans in Rhode Island
Raw land loan
Raw land is an empty plot of land with no roads or utilities. The sale price for raw land is lower than for improved land. Financing raw land is difficult without a detailed construction plan and budget. Loan requirements for approval for raw land generally require a solid credit score and a significant down payment.
Unimproved land loan
Unimproved land is like raw land in that it does not have electric meters, natural gas meters, or other utilities. Unimproved land is on its way in terms of development. Often, these sites have access to roads and some power lines but not everything needed to begin building a home. The eligibility requirements are strict, and only specific lenders, such as Mortgage Equity Partners, offer these types of loans.
Improved land loan
Mortgage Equity Partners of Rhode Island currently does not offer an improved land loan option. An improved land loan is used when the plot of land being purchased already has access to public utilities like roads and electricity. This land is much easier to build on and, therefore, slightly more expensive. Purchasing land of this kind requires a strong credit score and a detailed construction plan.
Here are some of the types of properties that fall under the vacant land lending category:
Eligible Properties include:
- Income-producing properties with acreage
- Recreational property (i.e., Hunting)
- Individual buildable lots
- No maximum acreage limitation (but needs a supported appraisal)
Ineligible Properties include:
- Development sites/speculative sites
- Properties located adjacent to or containing environmental hazards
- Zoned industrial or commercial
The type of land being purchased will influence the risk tolerance and the pricing of the loan. The Mortgage Equity Partners program has loan amounts from $100,000 to $750,000 and requires a minimum credit score of 660. A loan to value of up to 65%, which means the loan amount cannot exceed 65% of the appraised value of the land. Land loans can only be used for purchases with a maximum loan term of 240 months.
While building a home from scratch can be expensive, many homeowners have benefited from starting their project with a land loan. The most apparent benefit is building your home from scratch with your exact specifications. Land loans are also used by investors and developers who expect the home values in certain areas to increase and want to hold the land for future construction projects.
If you want to learn more about this unique program, contact one of our Providence, RI loan experts to discuss all your options.
