Different ways to Purchase/ Finance Vacant Land
- Vacant land is purchased very similar to how you would purchase a home: Cash, New Mortgage, or Land Contract or a Home Equity Loan may also be an option.
- Cash: Green is green. No explanation required here. Will a seller take less money because someone has cash? That has not been my experience. Whether a buyer has cash or a new mortgage, at closing the seller gets paid in full – they leave with a check in hand. One advantage to a cash sale is that the sale usually closes faster than if it's financed.
New Mortgage: New mortgages for vacant land can require all the same things required for a home purchase; application, credit check, appraisal, inspection, survey, underwriting, etc. About 95% of the vacant land I sell is financed with a new mortgage. There are several banks that offer financing. One of the major recreational land lenders in the state is Greenstone Farm Credit (greenstonefcs.com). They Offer:
•Competitive interest rates
•Small to unlimited acreage financing
•30-year amortization terms
•Lower down payment requirements
•Cabins, pole barns, outbuildings can be included in financing
Land Contract: There are very few sellers that offer land contracts. When they do offer a land contract they are advised to check the buyer's credit. Many sellers want a large down payment (20% is usually the minimum), and short term contracts are not uncommon (3-5 years is the norm). In all my time in the real estate business I have never had a seller offer zero down or a low down payment land contract. Often sellers give buyers restrictions of what can be done to the property as long as the land contract is in place; prohibit tree cutting, clearing land, erecting buildings, etc. Credit checks, large down payments, restrictions are all done to help protect sellers in the event a buyer defaults on the land contract.
Home Equity Loan: For those folks that didn't get upside down on their home value during the latest recession, there is always the home equity loan. You owe 100K on your house but it's worth 200K – you get a loan for the difference and use that money to buy land (or whatever) – that is a home equity loan. My advice is to go to the bank LONG BEFORE you start to look for land. Time and time again I have seen buyers disappointed to find out they only have 50K in equity not the 100K they thought they had. At closing you will already have the loan and the sale will close similar to a cash sale.
Other Costs: You may have other costs before or at closing including the following: Survey, Perk Test, Title Insurance, Tax Proration, Document Preparation Fees, Appraisal, and Loan Origination Fees. It can take anywhere from a few weeks to months to close a sale – there are a lot of variables – but on average a sale will close in 4-5 weeks.