If you’re looking to purchase Merced, CA real estate, you might also want to consider buying vacant land on which to build your custom home. Merced real estate agents can show you a wide selection of residential lots for sale.
Taking out a loan is one of the most common ways of financing a land purchase in Merced. Read on for more information on this practice.
Different Types of Loans
- Bank loans – Investopedia recommends reaching out to local lenders when shopping around for a mortgage for vacant land since these lenders are more partial to land loans and offer better terms than bigger and more established banks.
- United States Department of Agriculture (USDA) loan – If you’re interested in rural or agricultural land, you may qualify for a subsidized loan with better terms and minimal requirements.
- Seller financing – In cases where the landowner is highly motivated to sell or the market is slow, they may be amenable to seller financing, or an internal agreement where you can negotiate the terms of payment. To protect your interests, have an attorney review all the papers before signing.
- Equity – If you own property and have minimal debt, you may be eligible for a home equity loan, which allows you to tap the equity of any of your properties.
Boundaries, Utilities, and Road Access
When applying for a conventional loan, you will need to hire a land surveyor who can mark the boundaries of the property, determine any current restrictions on zoning and land usage, commit these details to paper, and present it to the lender.
This is because the lender wants to know exactly what you’re borrowing money for. They must be able to discern the size and features of the property to determine the appropriate amount to lend you.
Hook-ups, or access to utilities, will inevitably play a role in your decision to buy residential land. A piece of land that already has water, plumbing, sewage, electricity, and wifi, and cable lines will save you a lot of time and energy.
When a residential lot already has access to utilities, you won’t have any problems having a habitable structure built on the land.
Otherwise, you’ll have to take a few extra steps which include reaching out to local utility providers and confirming if the land has the provisions needed to establish water or electricity lines.
In the same vein, the residential lot must have public road access that makes it possible for you to enter and leave the property without intruding on another property’s boundaries. If not, you must secure a permanent easement in order to have access to a public road.
Intended Use
When applying for a loan, keep in mind that terms such as interest rate and down payment largely depend on the land’s intended use, which lenders perceive as having a direct impact on the amount of risk that the institution will take on.
Lending money for vacant land is riskier for banks than approving a loan for a piece of land that has an existing structure on it since an existing home serves as tangible collateral.
To boost the lender’s confidence, you can choose a build-ready lot and express your intention to start building a house immediately.
Although there are things that can go awry during home construction, such as increasing costs of construction materials or delays in the building process, you can manage the lender’s expectations by giving them a realistic timetable.
If the lender agrees to this, the down payment will usually fall between the 10% and 20% range.
Unimproved land or vacant lots that don’t have basic hook-ups will be viewed as a riskier purchase by lenders, primarily because many buyers find themselves dealing with construction issues and unanticipated costs, which extends the timetable for the purchase.
Raw land which is purchased as a speculative investment and with no immediate plans for construction may require a hefty down payment of about 50%.
Ready to make a land purchase? You’ve come to the right place. Reach out to us, Soldavi Realty, here for more information.