How To Invest With Raw Land Loans
When you purchase land, it is probable that you will not have all of the cash on hand. So just like almost any other huge investment, investing in land may require you to use raw land loans. But if you are new to the real estate industry, or new to land investing, you may not even know what a raw land loan is.
Many people do not realize that the way that a bank formulates your loans largely depends on what you are going to do with that loan. In the case of raw land loans, you may be doing many different things with the loan.
Since raw land is undeveloped and unused land, it is sometimes very difficult to secure raw land loans. This is because the collateral for the loan is most likely going to be the land itself. Since the land is not being used by anyone, it is very easy for the owner of the land to simply walk away from their investment and never repay the loan.
This obviously makes banks very nervous when giving raw land loans. So, you may have trouble finding a bank that will be incredibly happy about giving you such a loan. Most banks will require anywhere from 20% to 50% down payment to receive the funds. Though it should not be too hard for you to find a bank with around a 20% down payment requirement.
Raw Land Loans Differ From Other Types of Loans
Raw land loans are so much different than loans for developed land because the land is actually very different. There are many things that affect the terms of land loans also. For instance, you will need to find out all kinds of information about your land and let the bank know.
In fact, you may be required to have a surveyor inspect the land to let the bank know if city utilities can reach the land. The bank may also want to know if the city sewer can reach the land, or even if high speed internet will reach your lot..
This information affects your raw land loans even if you are not planning on developing the land. That is because the bank is interested in the possibilities of what could be done with the land or acreage.
If you are a small business, you may be able to get a loan with less difficulty. That is because the Small Business Administration, or the SBA, may guarantee up to $750,000 of your raw land loans. This will make the bank feel much more comfortable about loaning you funds.
Of course you will need to have some credit established. The best way to do this as a small business is to follow the 1-3-5 method. This means that in order to establish credit, you need to secure 1 small bank loan, 3 business credit cards, and then 5 vendor lines of credit. If you have a good history of making payments on time, then you should not have trouble securing raw land loans.
Just remember that land loans are much more different from other loans that you may have had before. There are many factors that affect this type of loan, but the most important is what you will be doing with the land. So, make sure that you know a lot about the land before you attempt to get one.
Knowing a lot of information about the land will allow you to be prepared and know what the land is good for. You will also be able to quickly answer questions at your loaning institution which may help secure a raw land loan for you.