Do you want to invest in land in Indiana, or purchase a lot so you can begin a construction project?

Whether your goal is to build a home or a commercial property or you simply want to purchase the land for use later down the line, you can do so with a lot loan in Indiana, also called a “vacant land loan.”

What are some important things to know about lot loans before you apply?

1. There is more than one type of lot loan. Land loans come in a number of different varieties. These include government land loans like USDA rural housing site loans and SBA 504 loans for small businesses, as well as regular lender loans. Sometimes, it is also possible to purchase land using a home equity loan or even financing directly from the seller. But we do not recommend the latter as the interest tends to be high, and the down payment could be in excess of what you can afford. Another option for purchasing land is to get a one-step construction loan. This is a combination loan that allows you to bundle together the financing for both the lot and the construction. Grandview Lending can help you figure out what type of lot loan will be the best fit for your needs based on the project you have planned, your timeline, and your qualifications.
2. Lot loans tend to have relatively short terms. Another thing that is important to know about lot loans is that they usually are a fairly short-term form of financing. So, you will want to make sure you are ready to move forward with your purchase and pay off the loan rapidly. Indeed, many buyers underestimate the cost to purchase land, especially with a construction project planned. You will have the best luck qualifying for a competitive loan and paying it off if you have very concrete plans for how you will use the land. In fact, we recommend that unless you will be waiting a long time to begin construction (or are not planning to build), you finalize floor plans and a timetable before applying for a lot and/or one-step construction loan.
3. You need to know exactly what land you are trying to purchase. If you have never bought land before, this might sound strange, but you need to know what you are buying, and be able to explain it to a prospective lender. What does this mean? You need to hire a surveyor to identify the boundaries. Once you know those boundaries, you can check the zoning laws that pertain to the lot. You then can make sure that your project is viable, and you will have the paperwork you need to show the lender.
4. If you might sell the property in the future, you should find out what might influence its value. If you are planning on building on the lot you are purchasing and/or landscaping it or putting in utilities, you know that you can enhance its value. But it is important to consider other factors that could also impact the future value of the lot. For example, there is a huge difference between what will happen to the value of your property if someone builds a school or shopping center nearby versus a landfill.
5. Finding a competitive land loan can involve more legwork than finding a regular mortgage. Generally speaking, lenders view land loans and construction loans as riskier than mortgages for existing structures. The reason for this is simple. An existing structure, even if it needs some repairs, is stable and concrete. But vacant land is untapped possibility. And while it has a positive potential, it has negative potential too. The buyer could, for example, get in over their head with a construction project and abandon it midway through. Or, they could stick with it, but end up pouring more money into it than they ever expected, leaving them struggling to pay off their loans. The key to avoiding these situations is also the key to getting a competitive lot loan, and that is to have a thorough plan in writing before approaching lenders, just as we previously suggested. Investors with highly speculative ventures in mind and scarce details will receive the least competitive offers (and may struggle with approval). The more information you can provide about your project and the more realistic your proposed plan, costs, and timeline are the more affordable rates and terms you will qualify for.

Grandview Lending Can Connect You With a Competitive Lot Loan in Indianapolis and Beyond

Now you know more about lot loans, including the different types of lot loans and some of the challenges you may face and the pitfalls you can avoid when applying for them.

Grandview Lending has extensive experience with lot loans in Indianapolis and throughout the state. We can answer your questions about lot and construction loans and connect you with a mortgage that can help you achieve your goals. If you are ready to begin, please contact us today at (317) 255-0062. We look forward to helping you finance your investment of land in Indiana.