What is a Land Loan and How Does It Work?
Minute Read
(Edited by Shauna Scarnato)
You’ve found the perfect plot of land for your future dream home, but you’re not quite ready to break ground. That’s where a land loan comes in. We sat down with Julie Weir, AVP of Secondary Markets, to answer your questions about how to get a land loan, how it’s different from a traditional mortgage and the pros and cons to consider.
What is a land loan for building a house, and how does it work?
Our residential land loan program allows you to buy vacant land and use it as a steppingstone to build a home in the future. This is a typical traditional mortgage with a specific term, note rate (that’s the interest rate written into your loan note) and monthly payments over the life of the loan.
Does Members 1st offer different types of land loans? What are the terms?
The property must be zoned residential, have no current structures and be eligible for a single-family build. We offer short-term fixed-rate loans with terms from five to 12 years, as well as adjustable-rate mortgages that are spread out over 30 years.
What are the qualifications for getting a land loan?
Minimum loan amounts are $10,000 with as little as 10% down*.
What are the pros and cons of land loans?
Pros:
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Lock in the perfect lot before you’re ready to build
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Affordable and accessible
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Build equity in the property
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Create your dream home from the ground up
Cons:
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Zoning rules and restrictions can impact the property
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Site might lack access to public roads and utilities
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Land may not be suitable for building
Is any insurance required for land loans?
We do not require insurance on a land loan.
How do you get a land loan?
Go through online banking. You can complete an application within the loans section for Mortgages. A Mortgage loan officer will contact you within one business day to discuss your intentions and request supporting documents related to income and current debt. Once approved, a closing will be scheduled for you to complete loan documentation and finalize.
*Sample terms: If you borrow $90,000 at 7.625% with one discount point (equal to 1% of loan amount) with a 12-year fixed-rate term, your estimated monthly payments are approximately $955.80 for principal and interest. For a 5/6m adjustable rate and term, borrowing $90,000 at 7.500% with one discount point (equal to 1% of the loan amount) your estimated monthly payment is approximately $655.02 for principal and interest.
