Many buyers of land will use a loan for their purchase. Unfortunately some of those buyers are in for a shock regarding the down payment because this type of loan is viewed differently than real estate purchases with homes or buildings. For some insight, here are key factors to know about down payments for land loans.
1. How much is the down payment on a land loan? Lenders require 20-50 percent of the purchase price. Why? It is a riskier investment since there are no structures. Therefore, they want as much money up front as possible.
2. What factors affect the down payment amount? The most important is your credit history. Also, down payments for “raw/unimproved” land tend to be higher than down payments on “improved” (has utilities, roads, landscaping, etc.) land to be built-on right away because unimproved land is perceived to be riskier.
3. What are the interest rates? Often, lenders like to tack on higher interest rates to high-risk loans to ensure that they get as much of a return as possible.
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