A land loan (or a vacant land loan) is a home loan where borrowers will seek financing from a lender to purchase a block of land. The intent with seeking a land loan is to eventually build a house on the block of land one day without it being determined in a specified amount of time. Therefore unlike most home loans which are used to fund the purchase of a land + property package, a land loan is purely to gain ownership in a block of land.
A construction loan, or builder loan, is a type of home loan where the funds are drawn down as your property is being built in progress payments. The main difference between a construction loan and a vacant land loan is the timeframe to build the property. During the time of taking out a construction loan, the lender will usually set a maximum time limit for you to completely draw down on your loan for when construction is completed. Whereas you are not obligated to build on your vacant land once taking out a vacant land loan.
Another difference between these two home loan types is a construction loan will involve determining the full amount of funds you will receive to purchase the land and build your home, whereas a land loan will only involve the funds needed to purchase the land.
The interest rates for vacant land loans are generally higher than the rates on typical home loans. This is due to land loans having a higher risk associated with them to lenders. As land prices tend to fluctuate more frequently than existing homes, and vacant land will generally take longer to sell than an existing home, lenders are more likely to take a more conservative approach when providing a loan to only buy land.
Get a free home loan quote today for an estimate of what you could borrow including the costs and fees involved or speak to your local Mortgage Choice expert today to understand what interest rates would be available to you.
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