Building A Home? What You Should Know About Getting A Loan For The Empty Lot

Are you getting ready to build a home from scratch on an empty lot? If so, you'll likely need the financing to get it done. Unfortunately, loans for empty lots are considered a bigger risk than your standard mortgage. This is because there are many complications that can happen in the home building process, causing the project to become over budget or abandoned due to problems that were not known at the start of the project. Here is what you need to know in order to get that loan you need.

Have A Large Down Payment Ready

While there are loans available for home buyers with a variety of different interest rates and down payment requirements, it is different for buying an empty lot. You'll need to have a lot of cash on hand in order to make the down payment on it. Each mortgage lender will have their own requirements for down payment, but expect it to be much more than what a house would need, which is typically 20% at most.

Use Existing Equity In Your Current Home

If you are having difficulties coming up with the cash for a large down payment, consider using your existing home to help pay for it. You can essentially get another mortgage on your home, or you can cash out the equity that you've put into it so far. Blanket loans are another option, which means that another property is used for collateral on your land purchase.

One thing to keep in mind is that having a second loan for the lot will add on to your existing debts. When your lender is approving your loan for an empty lot, your first loan plays into your personal debt-to-income ratio. If it is too high, your loan won't be approved. This means you may have to pay down other existing debts, such as student loans or medical bills, to bring down your DTI ratio.

Try Seller Provided Financing

Another option is to request financing from the seller. If they do not need the money for the land all at once, they can make a profit off of charging you interest for the loan that you need. This is not always an option when dealing with the land owner, so be sure to work closely with them from the beginning if this is an option you would like to consider.

For more info on a mortgage for land to build a home, contact your local mortgage loans company.