What is a land loan?
A land loan (or vacant land loan) is a home loan where borrowers seek financing from a lender to purchase land. The intention when seeking a land loan is to build a house on the land one day with no specific time frame. Thus, unlike most real estate loans, which are used to finance the purchase of a land + real estate package, a land loan is only used to acquire ownership of land.
Factors to Consider When Getting a Land Loan
When looking for a loan to purchase land, the size of the land is important as it determines the deposit required to obtain the funds.
These limits may vary depending on the lender, you can borrow up to 95% of the value of the property if the land area is up to 11 hectares. Whereas if you want to buy a larger piece of land, you will usually need a down payment of at least 20%.
The location of the land you want to buy is an important factor in securing your money, as access and land use rules will be part of the evaluation process.
For example, land in a capital city or regional center served by unpaved roads may be viewed favorably over land in remote locations without adequate road access for standard vehicles. Your land zoning regulations are important because you need to make sure the land is zoned for residential purposes.
Registered or not registered?
When buying land, it is important to know if the land you are interested in is registered or not, as a lender will not approve money for unregistered land. Registered land means it is ready to build your home as soon as you own the land, as all services are connected and the road infrastructure is complete.
intention to build
Even if you don’t need immediate plans to build on your property for a home loan, having an intention to build can help you secure financing. Indeed, lenders who have no intention of building are more at risk than a borrower who plans to build within a few years of owning the land.
The goal of the field
It is important to note that to qualify for a vacant land loan as a home loan, the land and any property must be used for personal or investment purposes, and not as a farm. In some cases, you can use your land as a hobby farm generating a small income from agricultural production.
The Difference Between Vacant Land Loans and Construction Loans
A building loan or construction loan is a type of mortgage where money is taken out while your property is being built. The main difference between a construction loan and a vacant land loan is the time it takes to build the property. For the term of a construction loan, the credit provider usually sets a maximum time limit for the full repayment of the loan after construction is complete. Since you are not obligated to build on your vacant lot once you have obtained a vacant lot loan.
Another difference between the two types of home loans is that the construction loan will specify the total amount of money you will get to buy the land and build your house, while the land loan will only include the money necessary to purchase the land.
land loan interest rates
Interest rates on vacant home loans are generally higher than interest rates on typical home loans. This is because land loans carry higher risks for the lender. Since land prices tend to fluctuate more often than existing homes, and vacant land generally takes longer to sell than an existing home, lenders are likely to take a more conservative approach when granting loans. loans only for land.
Get a free home loan quote today to estimate what you might be able to borrow, including costs and fees, or talk to a local mortgage expert today to understand what interest rates will be for you. offered.
House and land packages
The house and land set can be of two different types. One option – a turnkey solution – usually provides a newly built house on a given piece of land, while the other option gives you the option of first buying vacant land and then building a house from one. range of builders and designs. .
The advantage of the Home and Land Package is that it gives you the flexibility to customize your home to your liking. Since you will be purchasing both the house and the land from the same vendor, the process may be easier than buying the land separately, rather than hiring a builder to begin construction.
Another major benefit that makes house and land packages such an affordable option is the savings you can get on stamp duty. When you buy a house and land, and until you start building your new house, stamp duty will only be levied on the value of the freehold land you buy. You can use our calculator to calculate the amount of your stamp duty.
While a house and land package can be a great and affordable option, there are hidden downsides and costs to watch out for. When looking for show homes to inspire you, it’s important to note that certain features, such as landscaping, may incur additional costs. To avoid any hidden costs to your home and land, you can ask your builder for a breakdown of the price you are offering.
If you are looking to invest in real estate, a house and land package may be a suitable option with many advantages for investors. One of the main advantages is that a new home will generally have fewer maintenance issues and rental requirements than an existing home. However, if there is a problem it can be covered as most new homes will have a warranty period.
Buying land as a first-time home buyer
If you are a first-time home buyer looking to buy land to build your home on, you may be able to buy a modest home with just a 5% down payment under the Government Guarantee Program. deposit of the first real estate loan (new houses) from the government. If you buy a house and land or land and hold a detached home builder, you may be eligible to apply for one of the 10,000 places in this program. However, it is important to note that you must start construction within 6 months of signing the contract, complete construction within 24 months and move into the property within 6 months of issuing the building permit.
Learn more about the 5% deposit scheme here or speak to your local Mortgage Choice broker to see if you meet all of the eligibility requirements today!
It’s also important to remember that paying for a home involves more than a down payment. Additional costs may arise during the buying process and homebuyers will need to factor this into their budget. Additional costs may include pests, construction, legal fees, etc.