A land purchase loan is different in many ways from other types of secured loan, such as mortgages or commercial property loans. A land purchase loan can often require a great deal more information from the would-be borrower.
When there is a down-turn in the economy, or a credit crunch, there are likely to be fewer people looking for a land purchase loan. So there is no need to be put off by the current conditions as it means there will be more lenders looking for your business. This means you can shop around and find the lender who will give you the best deal.
So when you are comparing lenders, what should you be looking for? Here are some of the questions you should be asking.
Do you offer a long-term fixed rate? Land values are fluctuating at the moment. Interest rates are falling but they could start rising at any time. Having a variable interest rate would make it extremely difficult to budget your repayments. On the other hand, having a short-term fixed rate can lead to an unpleasant shock at the end of the deal. For stability, find a lender who offers a long-term fixed rate.
What fees do you charge? Many lenders charge quite unnecessary fees - often known as pink fees. Examples are underwriting fees and document preparation fees. These give the impression of being legitimate but they are actually part of the normal process by the lender of getting your application approved. Alternatively the lender might inflate legitimate fees - for instance they might double the charge for the credit report or the appraisal fee. Obtain a run-down of the fees and costs before applying for your land purchase loan and avoid a lender where the fees are excessive.
What is the time frame? Provided you have all your financial information to hand when you apply, it should not take more than 48 hours, or 72 at the most, to approve your application. Following approval, the appraisal process should take 1-3 weeks at the most and title 1-2 weeks. A good lender should be able to close your loan within three weeks of application. (Of course, if there are problems at any stage, it will take longer.) Many lenders pride themselves on a speedy turn-round so get this information in advance.
Obtaining a land purchase loan can be a good or bad experience depending on the lender. How good an experience it is often depends on whether the lender specializes in land loans or not. Just remember that YOU are in the driving seat. Make sure you get the land purchase loan YOU want, not the one the lender tries to push at you.
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