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How Do Banks Finance Different Types of Land?

If you want to purchase land for sale in Arkansas, the process of getting a loan depends on what you plan to do with the property.

Considered a speculative investment, raw land has no utilities, sewers, streets, or structures. It is also the hardest to borrow against and obtain financing. However, you still have to pay property taxes. Keep reading to learn how to finance a land purchase.

How Do Banks Finance Land?

Raw land you do not want to develop is harder to get a loan, but if you plan to build on the land soon, it is easier to get a construction or land loan. Here are some options that may work.

  • Commercial lenders. This type of loan is for investment or business purposes. Commercial lenders might approve you if you can convince a loan officer that you are a good risk. Repayment is ten years or less, with payments based on a 15 to 30-year amortization schedule.
  • Seller financing. This is a great option if the seller is willing to consider this option. Everything is negotiable, including the down payment and interest rate. Make sure to have a land real estate attorney review the agreement before you sign anything.
  • Local banks and credit unions. Local banks and credit unions are more likely to help you than large national banks. You can probably get better terms too since the loan officers probably have a better understanding of the local market. Come prepared with a loan package that shows your plans for the land, as well as documents to show your creditworthiness.
  • If you own residential property, consider a home equity loan. This option takes advantage of the equity you have in your existing property and comes with better terms than a construction or land loan.
  • Construction loans and land loans are short-term, lasting two to five years before the full balance of the loan is due. For a long-term loan, consider building a residential home on the property.

Reduce Risks to Improve Your Chance of Getting a Loan

The following factors look good and help you get better terms:

  • A credit score above 680 shows good repayment history.
  • A low debt-to-income ratio proves you can make the required payments.
  • A high down payment and smaller loan result in lower payments.

Arkansas Banks for Land Loans

A local bank or credit union are likely to look more favorable on a land loan. Find a bank with a history of loaning money for land for sale.

Buy or Sell with Experienced Professionals

When you want to buy or sell land for investment or recreational purposes, Davis DuBose Knight has land agents who know Arkansas real estate and who can lend you their expertise to help you buy the best land for sale in Arkansas. To see how we can help you today, contact us by calling (501) 219-8600.