Tuesday, March 1, 2011

How to Get a Land Loan for a California Lot or Custom Home

Lot loans can be much more difficult to obtain than a typical home loan. Getting a mortgage loan for a home or condo may require a higher down payment and a good credit score in today’s loan market, but it is easy enough to obtain even with a thirty year payback. If you want a loan for raw land well today that is maybe mission impossible. There are no banks that we are aware of that will offer a 100% loan for raw land purchases. IndyMac Bank of Pasadena was one of the first banks to be taken over in the last financial crisis by the FDIC in 2008. Its assets were absorbed by OneWest Bank. We have found that IndyMac provided loans of up to 85% of the land value. A number of those properties were foreclosed on and resold in the past year. Other major banks like Bank of America and Wells Fargo have foreclosed on some land owners and have resold those properties in the last few years also. Yet we are not aware of the details of those foreclosures. A direct loan from a bank for a land parcel is likely a thing of the past as banks require more security and undeveloped land provides no bank security as raw land is more speculative and has no improvements.

A more likely land loan would be a loan to build a home. The most efficient way to do this would be a construct to perm loan which is a land loan to construct a home. It is different than a construction loan. According to ehow as construction loans are temporary as they are drawn upon during the construction process. There is no principal paid on a construction loan during this draw stage, as it is used entirely to construct a project. A construction perm loan is a one loan to build a home that takes the place of up to three separate loans. You can write a contract for the purchase of land, and add it to the loan package, saving the cost of closing a land loan. The second is the construction loan itself. One can go into a bank and get a construction loan and pay to close it. Later one would have to pay to close a permanent loan to pay off the construction loan. A construction perm loan would encompass all of these loans into one, saving money in time and closing costs. You get the loan to buy the land, and to construct the home making it a longer term loan.

Another option may be an “owner will carry loan” (OWC). This is a seller financed loan where the land seller gets interest from the buyer over time. These are typical monthly payments at normally competitive interest rates. These types of loans are usually short term from as low as three to fifteen years. They can be longer or even shorter terms. You should expect to pay current market interest, and we advice you get a no penalty for early payment. The down payment (deposit) is usually higher. An example may be a $20,000 property would require a $5000 deposit. The balance of $15,000 paid monthly at 7% interest over 5 years. In this case you would pay $297/month over 5 years or $17,820. This is an easier way to purchase land over time without the need for bank credit. If you fail to pay then the seller can foreclose on the note and the seller retains the deposit and any payments you have made. This process is very common in the purchase of raw land.
For more answers on land opportunities and owner will carry options contact us at vacantlanddeals.com

1 comment:

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