Purchase, Refi nance, and
Reverse Mortgage Loan Options
Hi - 217406
PHONE: (808) 327-0404
CELL: (808) 960-3457
barbara@apexmortgagehawaii.com
apexmortgagehawaii.com
BARBARA A. WELSH
Mortgage Broker/Owner
Hi - 224003
76-6225 Kuakini Hwy. C-106
Kailua-Kona, Hawaii 96740
Kona Real Estate Management
Property management
of long term rentals and
home check services.
A small but professional
father-daughter run
company that are both
licensed brokers and
treat your property
like their own.
808-329-3121
www.konahomesandrentals.com
Joseph A. Garcia
BIC
Christina Sotelo
BA
Thinking of Vacation Renting?
Not all management companies
are created equal.
Call today - to fi nd out the differences
OFFICE NOW OPEN IN MAUNA LANI
(808) 329-2140
Mauna Lani Offi ce Kailua Kona Offi ce
68-1330 Mauna Lani Dr 74-5565 Luhia St, Suite 101
www.konacoastvacations.com
14 West Hawaii Real Estate | September 14, 2018
Ben Luthi: What property buyers should know about land loans
If you’re thinking about buying
land, you’ll be hard-pressed to persuade
a mortgage lender to finance
your purchase. Instead, you’ll likely
need to apply for a land loan.
Land loans aren’t as common as
mortgage loans, so your options may
be limited. Also, because of different
factors, you could end up with a
shorter repayment period and higher
down payment and interest rate than
you’d find with a mortgage loan.
So, if you’re considering getting
a land loan, it’s important to know
what you’re getting yourself into and
what options are available to reduce
your costs.
What are land loans?
Land loans are a type of credit you
can use to buy a vacant lot to eventually
build a home on or raw land that
you don’t intend to develop.
Land loans tend to be riskier for lenders
than mortgage loans, says Casey
Fleming, a mortgage adviser with C2
Financial Corp. in San Jose, California.
And because of that, you may not get
as favorable terms as you might get
with a mortgage loan.
“Owners of raw land are much
more likely to stop making payments
and walk away from the property in
the event of a financial event in their
lives,” Fleming says. “And land is
much harder to sell (than a home).”
That’s primarily because the
demand for land is smaller than the
demand for new and existing homes.
So, if a lender needs to foreclose on
the land, there’s no guarantee it will
get its money back in a timely manner,
if at all.
As a result, some lenders require a
substantial down payment and charge
high interest rates on land loans. Also,
some land loans have significantly
shorter repayment terms than a typical
15- or 30-year term you might get
with a mortgage loan.
5 land loans to consider to finance
your land purchase
There are five common types of
land loans you can get to finance
your land purchase, each with its
own terms and features.
1. Lender land loans
Community banks and credit
unions are more likely to offer land
loans than large national banks. Your
best bet is to find a lender with a
presence near the land you want to
buy. Local financial institutions know
the area and can better assess the
value of the land and its potential.
If you’re leaving the land undeveloped,
interest costs will be very high,
Fleming says. Plus, a lender could
require a down payment as high as
50 percent.
Some lenders, however, may be
willing to take a lower down payment
and charge lower interest rates if you
have plans to build on the land soon.
So, shop around before you apply.
Also, local lenders are more likely to
offer longer repayment terms, giving
you more time to repay the debt.
2. USDA Rural Housing Site Loans
If you’re planning on building a
primary residence in a rural area, the
U.S. Department of Agriculture (USDA)
has a couple of loans that can help.
Section 523 loans are designed for
borrowers who plan to build their
own home, while Section 524 loans
allow you to hire a contractor to build
the home for you.
Both loans are designed for families
with low to moderate income, and
they have a repayment term of just two
years. Interest rates, however, can be
low. Section 523 loans, for instance,
charge just 3 percent, while Section 524
loans charge the current market rate.
Depending on the situation, you
may even qualify for a loan with no
down payment.
3. SBA 504 Loan
If you’re a business owner planning
to use the land for your business,
you may qualify for a 504 loan
through the U.S. Small Business
Administration (SBA).
With a 504 loan, you, the SBA and
a lender help contribute to the costs
of the land purchase:
– The SBA provides a loan for 40
percent of the purchase cost.
– A lender provides a loan for 50
percent of the purchase cost.
– You contribute 10 percent in the
form of a down payment.
SBA loans come with a 10- or
20-year repayment period, and the
interest rate will be based on current
market rates. The terms of the loan
you receive through the lender can
vary, however, depending on which
lender you choose.
4. Home equity loan
If you have an existing home with
significant equity, it may be worth
getting a home equity loan instead of
trying to get a land loan.
There’s no down payment on a
home equity loan. What’s more, you
can typically get a low interest rate —
regardless of what you plan to do
with the land — because your home
secures the loan.
The downside is that if you default
on the loan, you could lose your
home. Also, since you’re not using
the loan to buy, build or substantially
improve the home used as collateral,
you can’t deduct the interest you pay
when you file your taxes.
Depending on the lender and the
loan, your repayment term could be
anywhere between five and 30 years.
5. Seller financing
In some cases, the person or company
selling the land may be willing
to offer short-term financing. In many
cases, the seller isn’t in the lending
business and doesn’t have a broad
portfolio of loans like a community
bank or credit union.
As a result, you can typically
expect high interest rates and a high
down payment. Also, it’s unlikely
you’ll get a long repayment term. So,
consider this option if you can’t qualify
for any other type of land loan.
How to find the right land loan
for you
There’s no single best land loan
out there for everyone, so it’s important
to shop around to find the best
one for your situation. Before you do
anything, Fleming recommends developing
a comprehensive plan for what
you plan to do with the land.
Doing this can help you determine
what type of loan is best and how long
you want the repayment term to be.
Keep in mind, though, that some
lenders may have limits on how much
they’re willing to finance. Others,
Fleming says, may require a balloon
payment, which is a large, one-time
payment at the end of the loan term.
“So, you may have to have a plan
to pay it off before that payment
comes due.”
As you consider your different
options, make sure you choose one
that fits within your budget and helps
you achieve your ultimate goal with
the land.
link
/www.konahomesandrentals.com
/www.konacoastvacations.com
