When you are purchasing land, it is essential to understand the function of all types of Arizona Land Loans that are available. Applying for the wrong kind of loan could be a costly mistake.
Most people are familiar with the process of securing a loan for a new home. But when it comes to getting a loan for a land purchase, the process is a bit different. There are actually three different types of Land Loans, and each one has a different purpose. Understanding the proper way to sue each loan is critical before you begin the loan application process. Applying for the wrong type of loan will not only waste time, but the application fees could also be lost.
Raw land is a piece of property that has absolutely nothing on it. This means no structures and also no utilities such as electricity, sewers, or city water. In addition, there are no roads on the property. If you are planning on buying land that has no improvements, then you are going to need to apply for a raw Land Loan. These Loans are some of the most challenging to get because lenders are concerned about how long it will take to have the land improved and for construction to begin on the property. The longer the land sits without improvements, the higher the risk to the lender. To counter all of this perceived risk, the interest rates are high, and the down payment can be as much as 50% of the value of the land.
Lot Arizona Land Loansare the next tier above a raw Land Loan. These lots have some of all of the infrastructure in place, such as water or electricity. A lot Land Loan is most often used for residential construction in an established area. Lenders see less risk involved in these Loans, and for that reason, the interest rates are far more reasonable. The interest can be from 10% to 20%, and the term for a lot Land Loan can extend up to 20 years.
Construction Loans Cover More Than Land Loans
A construction loan is a more substantial loan that will cover the cost of both the purchase of the land and the construction of the structure. These Loans require a credit score of 700 or more and a very low debt to income ratio. You will also need proof of a reliable income and the appraisal value of the structure that you intend to build. A construction loan often requires 10% to 20% down in addition to approved construction plans. Most lenders will also need some information about the builder to make sure that the firm is licensed and reputable.
More Critical Information
In many cases, the lender will offer a pre-approved builder list. This can eliminate a great deal of time during the approval process and much paperwork on your part. This also expedited the draw or payment process throughout the construction loan. These payments are made from the lender to the builder as specific milestones are met. Construction Loans only extend through the end of the build process, which is usually about one year. During the term of the loan, you are only responsible for making the interest payment. Once the construction is completed, the loan is converted into a 15 or 30-year traditional mortgage. Knowing how to use each type of Land Loan correctly is sure to save you both time and money.
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About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.