Answer: Land loans are simply hard to get because of three reasons. These reasons are:
1) Land loan lenders are limited in number compared to home loan lenders.
2) Few land loan lenders specialize in land loans and only land loans.
3) Land loans are in nature riskier loans.
1) Land loan lenders are limited in number compared to home loan lenders. I bet if you wanted to purchase a home or refinance your current home you could automatically think of several lenders that would love to compete for your home loan. Now how many lenders can you think of that would offer you a land loan for 5 acres to build your dream home on in 2 years?
Because there is a limited amount of lenders who offer land loans, this makes it harder to obtain a land loan. This is simply a matter of supply and demand. More people are purchasing homes than land. So, more banks offer home loans than land loans. As the supply of land loan lenders decrease, the harder it is for the consumer to not only find a lender but develop a relationship with their lender.
2) Few land loan lenders specialize in land loans and only land loans. If you do get lucky to find a land loan lender, many times they do not offer a Fixed rate option.
3) Land loans are riskier loans then home loans. One main reason is as an individual’s income decreases they will choose to let their land loan default before they will lose their home. Also raw land values typically can have wider swings in value due to the fact that if a recession hits land will lose value faster than residential markets.
As land loans are riskier, lenders require more collateral and greater financial strength from the customer to give them a land loan. As more is required down to purchase land and the financial condition of the borrower is tightened fewer people can get approved for a land loan.
These three reasons do make it harder for the individual looking for a land loan to achieve the loan they are searching for. Fortunately we located a bank who offers a very competitive Land Loan available in 27 states.
Check out the details on the vacant land loan from First Tech Federal Credit Union.