Loan for land purchase

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Land Loan
Posted by: Mindy Mar 18 2004, 08:37 PM
My husbad and I have found 100 acres of forest in New Hampshire that we very much wish to purchase and build on at some later date. We have excellent credit, little debt, & a 3-figure income but only a little more than 10 percent of the land cost in cash. Is it reasonable to seek a lender for such a purchase? The few I have talked to asked for 30 to 50 percent down. Thanks
Posted by: loanuniverse Mar 19 2004, 09:34 AM

A couple of things:

First, when talking about income, it is usually expressed as an annual figure. So when you say ” a 3-figure income”, I figure that the both of you make anywhere from $100 to $999 a year, but I imagine that you really meant over $100,000.

Anyway regarding your question ” Is it reasonable to seek a lender for such a purchase?” Here is my feedback.

1- Land loans are usually considered by banks when they are part of a bigger picture that includes development.

2- All of the lenders that I have worked for would consider your request as an undeveloped land loan and would require a 50% down payment. {the lender requesting only a 30% down seems like is offering better terms that the industry}

3- Most lenders would consider your request as a “speculative land loan”, from the point of view that no immediate use of the land is planned.

4- If you only have 10% in cash available, you might want to consider using the lender requiring only 30%, and coming up with the remaining twenty percent through either seller financing or by encumbering another asset.

5- You might be able to get a lender outside the mainstream to go with 90% loan-to-value, but I wouldn’t know exactly where you could start looking. Then again, it all depends on the amount of the loan. If the 100 acres are selling for $100,000, going with a high loan-to-value with borrowers making good money and with excellent credit might not be much of a problem. Your downside is limited. If the land is being sold for $500,000, then the exposure to the lender is higher and would make them more cautious.

Good luck and I hope this helps.
Author: Commercial Loan Underwriter