Can you get a mortgage on land?
April 24, 2020 Land For Sale
The short answer is no. Most banks and lending institutions will not loan money to someone looking to purchase vacant land using a typical mortgage. Mortgages have a particular interest rate and repayment plan because they are considered a low-risk loan. Most people will fault on many other payments before they risk losing their home. This, combined with the relative ease of selling a home if the bank possesses it, allows lenders to be lenient with mortgages. Vacant land does not have those benefits going in its favor. Vacant land is not critical for someone to maintain their life like a home is. Typically, vacant land is also not a significant source of income, making it a low priority bill for many people. If a bank gets stuck with the land area, it is not as easy to sell as home as homes are in way higher demand.
Because land is more challenging to deal with, banks have individual land loans to take the place of a mortgage. Compared to a mortgage, land loans are designed to lower the risk the bank is taking on. This means you will see a higher required down payment, higher interest rates, and shorter repayment terms. Lending money is all about managing risks, and banks consider vacant land a higher risk than an inhabitable property.
There are other options available to you if you fit specific requirements. Some lenders will be more forgivable if you have a plan to build on the property. If you are buying the land for agricultural purposes, there are more loan options available. And for businesses that will be using the land asset to grow their business, the SBA has loan options. The bad news is that for a hunter who wants the land for recreational purposes, getting anything besides a typical land loan may be next to impossible.
The critical thing to remember when looking for financing to snag that perfect hunting land is that every bank is different. Shop around for land loans just like you would any other type of loan. Visiting local banks and credit unions may give you a leg up as well-considered they'll better understand the local economy and purchasing climate. What a national bank considers high risk, a local credit union may comprehend as a low risk, highly desirable purchase.