Residential
Land Loans
About land loans
Owning land is vital, whether you plan to use it for residential, commercial, or agricultural purposes. At Canopy Credit Union, we make the process as simple as possible.
A land loan is a type of credit designed to help you purchase a tract of land, whether it’s raw land, bare land, or improved land. Sometimes called a plot loan or lot loan, it’s perfect for people who want to secure the right property now but aren’t quite ready to build a home, start a business, or take out a construction loan just yet.
How do land loans work?
Because land loans don’t have a house or building to act as collateral, lenders must carefully assess the value of the real estate you’re buying. This added risk means land loan rates are often higher than traditional mortgage rates, and they may require a larger down payment and more detailed qualifications.
Step 1: Choose Your Land and Your Purpose for It
Before you apply for a land loan, take time to create a detailed plan for your purchase. Do you plan for the property to be for residential, commercial, or agricultural use? What type of structure (if any) would you like to build later? Determine whether you’re seeking raw land, bare land, or an improved lot. You can explore listings on your own or work with a real estate agent who specializes in land sales to help you find the perfect plot.
Step 2: Get Preapproved for a Land Loan
Once you’ve chosen the right type of land, it’s time to talk about financing. Getting preapproved for a land loan helps you understand your land loan rates, down payment requirements, and estimated monthly payment. At Canopy Credit Union, we make preapproval straightforward. Simply provide a clear plan for how you intend to use the land and meet the basic loan qualifications. This step gives you confidence as you search and negotiate for your property.
Step 3: Buy the Land You Need
When you’ve found the land that checks all your boxes, you’re ready to make it yours! Apply for your land loan with Canopy CU, lock in your rate, and move forward with closing. At this stage, you will need to submit the financial requirements, as well as detailed information about the land you intend to purchase, including a plan of use, zoning, official boundaries, and access to utilities.
land loan requirements
Before you apply for a land loan, it’s helpful to know what most lenders look for. Meeting these qualifications can make the process smoother and increase your chances of approval:
- Solid Credit Score: A credit score of 700 or higher indicates to lenders that you’re a reliable borrower.
- Healthy Debt-to-Income Ratio: Aim for a DTI of 43% or lower to demonstrate you can manage the new payment.
- Detailed Land Use Plan: Clearly outline how you plan to use the land—whether for residential, commercial, or agricultural purposes.
- Survey Plans: Provide an official survey that marks the boundaries and measurements of the property.
- Utility Maps: Show the location of municipal water, sewer, and gas lines to confirm the land is suitable for your plans.
- Zoning Permits: Ensure the property is zoned for your intended use, whether that’s building a home, starting a business, or holding the land as an investment.
types of land loans
Not all land is the same and neither are the loans used to finance it. Land loans are categorized based on how much development the property already has. Knowing the type of land you’re buying helps lenders decide how much they’re willing to finance and what kind of down payment and loan terms will apply.
- undeveloped land loan
- What It Is: Undeveloped land, sometimes called raw land, refers to lots that are not ready for construction. These parcels typically lack access to utilities like water, electricity, or road access, making them a bigger risk for lenders.
- Minimum Down Payment: The Federal Deposit Insurance Corporation (FDIC) typically sets a minimum down payment of 35% for undeveloped land loans.
- semi-developed land loan
- What It Is: Semi-developed land has some basic infrastructure in place, such as road access or partial utilities, but may still need additional work before you can begin construction.
- Minimum Down Payment: A 25% down payment is typically required for semi-developed land.
- developed land loan
- What It Is: Developed land is fully ready for residential or commercial construction. It has access to all major utilities and is the least risky option for lenders.
- Minimum Down Payment: Usually, just 15% down is needed to finance developed land.
- rates that help you move forward
At Canopy Credit Union, we make it easy to understand your options. Whether you’re buying raw land, bare land, or an improved lot, our team can walk you through available terms and find a solution that fits your goals.
calculate your land loan payment
Wondering what your monthly payment might look like? Our land loan calculator makes it simple. Just enter your land purchase price, down payment amount, and loan term to see an estimate of your monthly payment.
apply for a land loan online
We’re proud to support our Spokane community by helping neighbors secure the land they need to grow. With our simple online application, you can get started from anywhere, eliminating the need to wait or visit a branch.
Apply today and let our friendly loan officers guide you every step of the way. Together, we’ll make it possible for you to own the land you’ve been dreaming of.
land loan FAQs
You asked, we answered! Here are the frequently asked questions of our Spokane members.
Can I Get a Tax Exemption for a Land Loan?
If you have plans to build on land, you can be eligible for a tax exemption with your land loan. However, if you don’t have a plan to build on it yet, you may not qualify for one. Consult with a tax professional to know more.
What are the Loan Terms for Land Loans?
Land loans typically have shorter terms than traditional mortgages, which generally are about 15 years. The short loan terms help minimize the high risks associated with land loans.
Why are Land Loans Seen as a High Risk?
Land loans are considered high risk because there is no physical structure on the property to serve as collateral. For instance, if a borrower already lives on the land where a home is located, they are more likely to keep up with mortgage payments to remain in their home. However, from the perspective of many lending institutions, borrowers could more easily default on an empty plot because there is no investment to secure or collateral that the lenders can use to recover their loss.
Can My Land Loan be Integrated into a Construction Loan?
Once you’re ready to build, your land loan can be integrated with the construction loan to finance the land purchase and construction costs. The construction loan can then be transformed into a standard mortgage once the construction is complete.
Can I Buy Land and Build a House with One Loan?
Yes, you can. See our construction-to-permanent loan information to learn more.
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