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February 23, 2024

Unlock the Potential of Land: Your Guide to Land Purchase Loans

Dreaming of building your dream home someday, but not quite ready to break ground? A land purchase loan might be the perfect first step! Dive into this guide to understand how land loans work, including their pros and cons, the loan process, and different financing options like MIDFLORIDA's construction-to-permanent loan. Discover how securing your ideal lot now can pave the way for building your dream home later, and start planning your future with confidence!

This blog is for educational purposes only, not an offer of credit or advertisement for current loan terms. It does not provide legal advice. Refer to our loan web pages or consult professional advisors for specific information.

Dreaming of finding the perfect home site but not quite ready to build? In this unique situation, a land purchase mortgage can be a valuable option for financing your future dream home.

Unlike traditional mortgages, a land purchase mortgage allows you to secure the land itself, holding onto it until you're ready to build. The process shares similarities with other mortgages, but with the key difference being the focus solely on the land acquisition.

Let's delve into the details of land purchase mortgages, exploring both the potential benefits and drawbacks to help you decide if this approach is right for you.

Skip ahead: Start your application with MIDFLORIDA Credit Union.

Can you get a mortgage on land?

Yes, you can! Borrowers can get a loan to purchase land to build a home in the future. This type of loan is called a land loan or a lot loan.

Similar to traditional mortgage applications, you'll need to work with a mortgage specialist to apply for this type of loan. However, land loans differ in their specific structure, designed solely for acquiring residential land rather than existing homes.

It's important to distinguish land loans from construction loans, which combine the cost of both land purchase and home construction into a single financing package.

Unlike construction loans, land loans or lot loans are only used for land purchase—not as a source of construction financing or permanent financing.

How to purchase land with a loan

Purchasing land with a loan involves several steps. Borrowers need to understand the process to make the most informed decisions.

The following are steps on how to finance a land purchase:

  1. Understand your financial situation, including your credit and budget
  2. Research your loan options and find a lender experienced with home lot loans in your state
  3. Find a suitable piece of land that meets your future home-building needs
  4. Start the approval process with your lender
  5. Get an appraisal of the lot to determine its current market value
  6. Determine your down payment amount
  7. Close on the loan
  8. Consider your future financing options for the construction of your home

MIDFLORIDA offers a construction-to-permanent mortgage, which is helpful for borrowers who have previously purchased a residential lot.

A construction-to-permanent mortgage, also known as a single-close or one-time close construction loan, provides the financing for the construction of a home and the permanent financing once construction is complete.

Your mortgage specialist can explain your construction loan options as you navigate the home lot loan process. They will help you understand your future next steps when you decide to begin the construction process.

Can you get a loan for land in Florida?

Often, the easiest way to secure a land loan in Florida is through a credit union familiar with the area, like MIDFLORIDA. We offer home lot loans to qualifying residents, allowing you to finance land for 80-90% of its value and make affordable, fixed payments while planning your dream home. Borrowers must meet specific credit score, income, and debt requirements. Remember, land purchase loans have shorter terms than traditional mortgages.

What are the pros and cons of land purchase loans?

Do you think a loan for land purchase may be right for you?

Let’s take a look at the pros and cons of this type of loan to help you determine whether you should move ahead with your purchase or consider another type of loan for the lot.

Pros of a land purchase mortgage

  • Gives borrowers access to the funding they need to purchase a home lot, even if they don’t have the full amount in cash
  • Allows borrowers to secure the land now even if they aren’t ready to build
  • Provides a step forward in the borrower someday building the home of their dreams

Cons of a land purchase mortgage

  • Considered a higher-risk loan for lenders
  • Shorter loan terms than traditional home mortgages

The most important consideration for borrowers is to conduct due diligence on the lot they’d like to purchase.

This means thoroughly evaluating the property to verify its ownership history, lot boundaries, legal access, title issues, covenants and restrictions, local zoning regulations, and utility accessibility, other considerations.  A qualified real estate attorney is recommended.

Which loan is best for buying land?

The best loan for purchasing land depends on your homeownership goals.

If you have found the perfect residential lot but don’t intend to start building a home for the next few years, a home lot loan may be your best option.

On the other hand, if you plan to start construction on your new home within a year, it may be best to get a construction-to-permanent mortgage to cover the costs of the land purchase, and construction and ensure a seamless transition to a permanent loan.

MIDFLORIDA offers both home lot loans and single-close construction loans. We can help you determine which option is right for you.

Start the loan process with MIDFLORIDA Credit Union

MIDFLORIDA can provide you with the funding for your residential lot while you focus on building the home of your dreams.

Once you’re ready to build, our mortgage specialists can lead you through the process of securing your lot loan or home construction loan.

Start your application with MIDFLORIDA to experience our personalized, efficient loan process.

We care about your financing needs and look forward to helping you build your dream home.

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