Florida FHA Loan Requirements 2023
Buying a home is a big investment that takes a lot of thoughtful financial planning. Luckily there are several financing options, some that even...
Vincent Diaz
:
October 25, 2022
5 min read
Found the perfect spot to build? Do you think a plot of land will be more valuable in a few years and want to scoop it up before the price skyrockets? In these cases and more, you need to know how to pursue innovative private land financing in Florida.
Fortunately, there are ways to secure land via Florida land loans, including home equity loans, seller financing, and more. Let us show you everything you need to know about land loans in Florida now.
A land loan is a financing solution intended to purchase or refinance a plot of land. Land loans are not the same as a traditional mortgage loan or construction loans:
While the details about this loan option can vary, most Florida land or lot loans last between two and five years. At the end of their terms, most land loans require you to pay back the loan balance if any remains.
Land loans in Florida work similarly to all the other types of financing. Generally, borrowers need to have the following:
Lenders take on more risk when lending on land because if for any reason the sponsor defaults on the loan, the lender can be left with an unfinished asset that could be difficult to liquidate.
Thus, many Florida land loans have higher borrower qualification requirements than a traditional home mortgage.
If you want to buy land in Florida for building or investment purposes, you can take advantage of five different types of land loans. Let’s review each of these loans one by one.
Home equity loans borrow against any equity you've built up in a property you already own. The property access collateral for the loan; the lender will take ownership of that collateral if you default on your land loan in the future.
Home equity loans can be advantageous if you want to buy land for investments or to build a second home in the future. However, you must be sure that you can repay the loans; otherwise, you may put your homeownership at risk.
Private land loans, also known as bridge loans or hard money loans, are a short-term financing solution offered by a local private lending institution instead of a large bank or national mortgage lender.
Private land loans are ideal for real estate investors who want to leverage debt but still be able to close as fast as a cash offer would. Oftentimes land deals need to move quickly and qualifying for a construction loan can take longer than expected. This is where a private land loan can be used to help bridge the temporary gap.
Private land loans are usually interest-only loans with a balloon payment due at maturity. Rates for a private land loan can vary between 7% - 12% depending on the lender and the quality of the asset.
The US Small Business Administration offers SBA 504 loans. These loans are provided through a specific program that combines loans from traditional lenders and community development corporations or CDCs.
Depending on your needs, you can use SBA 504 loans for commercial real estate development, such as purchasing land to build a business. SBA 504 loans can also be used to buy existing buildings on land plots and pay for land renovations or improvements.
Seller financing is a unique financial arrangement in which the buyer of a property pays the seller of a plot of land in installments rather than using a traditional mortgage loan.
Rather than using a middleman institution like a bank, the land seller takes the regular loan payments from the new buyer over time.
USDA Rural Housing Site Loans allow individuals to purchase and develop housing sites in rural areas. These outstanding loans are only intended to be used by low to moderate-income families who may have difficulty securing financing to build properties in rural areas otherwise.
Private land loans in Florida have several advantages and disadvantages. Keep these in mind when determining which financing solution to take.
Private land loans often result in faster purchases or deals closing. As a result, they can be advantageous if you are in a competitive market and want to outbid your competitors quickly.
Furthermore, private land loans in Florida give you time to qualify for larger construction loans if you want to develop the land or build property on it.
Since private land loans are asset-based, they don’t require personal income verification or credit score minimums (in most cases, keep in mind that lenders may still need to pull your credit to check for any major credit events).
On the downside, private land loans can be challenging to find, as they’re not as common as traditional loan arrangements. On top of that, private land loans in Florida may only be used for investment purposes.
You can purchase residential lots with a private loan, but the development must be for investment purposes like rental property construction. It cannot be to build a home that you intended to use as your primary residence.
In addition, private land loans in Florida usually have short repayment periods. As a result, investors must ensure they can pay the loans back on time or risk significant penalties or the repossession of any collateral.
Ultimately, there are multiple ways in which you can get a private land loan in Florida. Keep in mid that each private lender has their own set of requirements and lending parameters that are specific to land. For this reason, it’s always recommended to schedule an introduction call with a lender to understand their requirements, before you apply.
Questions you can your land lender during an introduction call:
Providing the lender with insights on the location of the land or any improvements made, will help the lender assess the deal and provide you with a quick decision on whether they can make the deal work.
Have more questions on buying land in South Florida? Contact Vaster today to learn about our competitive residential land financing for investors.
Sources:
Fixed-Rate vs. Adjustable-Rate Mortgages: What's the Difference? | Investopedia
SBA 504 Loans: What They Are & How They Work | FitSmallBusiness
Buying a home is a big investment that takes a lot of thoughtful financial planning. Luckily there are several financing options, some that even...
A hard money lender could be the best solution when you need fast financing. The correct hard money lender can get you the money you need to secure...
For many Americans, acquiring the financing (or refinancing) for a rental property is a critical professional goal.
Get exclusive access to our latest insights and upcoming events
Get first access to all of our industry articles, reports, and downloadable content.