Land Loans in Florida

Found the perfect spot to build a spec home in Florida? 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, bridge loans, seller financing, and more. Let us show you everything you need to know about land loans in Florida now.

What Is a Land Loan in Florida?

A land loan is a financing solution used for a land purchase or to refinance a piece of land. Land loans are not the same as a traditional mortgage loan or construction loans:

A traditional mortgage can only be used to buy or refinance a property that is fully completed, like a house or apartment.
Construction loans can be used to purchase the land, cover building costs, permits, labor, and work with an architect. However, the funds for a construction loan are distributed in installments instead of a lump sum.
While the details about this loan option can vary, most Florida land or lot loans last between 18 to 24 months.

How Do Land Loans in Florida Work?

Land loans in Florida work similarly to all the other types of financing. Generally, borrowers need to have the following:

Good credit: While many private lenders do not have a minimum FICO score, the lender will want to pull your credit to ensure there aren’t any major delinquencies. A recent bankruptcy or foreclosure may hurt your odds of getting approved.
A business plan: A lender will want to understand your intended use for the land to feel comfortable funding your purchase. Providing a business plan and/or a portfolio of your previous developments will help you get approved for a land loan.
A higher down payment: Financing land is riskier than financing a home; therefore, many lenders will require more commitment from the borrower in the form of a higher down payment, ranging anywhere from 35-50%.

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.

Five Types of Loans for Land in Florida

Home Equity Loans
Private Land Loans
SBA 504 Loans
Seller Financing
USDA Rural Housing Site Loans

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 loan types:

Home Equity Loans

Home equity loans borrow against any equity you've built up in a property you already own. The property accesses 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 new 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

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 10% and 12%, depending on the lender and the quality of the asset.

SBA 504 Loans

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

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

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: Pros and Cons

Private land loans in Florida have several advantages and disadvantages. Keep these in mind when determining which financing solution to take.

What Are the Pros of Private Land Loans in Florida?

Faster closings: 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. This gives you time to qualify for a construction loan after starting the application process. Private land loans in Florida also give you time to qualify for larger construction loans if you want to develop the land or build property on it.
Asset-based with competitive rates: 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).

What Are the Cons of Private Land Loan Programs in Florida?

Difficult to find a lender: On the downside, private land loans can be challenging to find, as they’re not as common as traditional loan arrangements.
Approval depends on land quality and intended-use: On top of that, private land loans in Florida may only be used for investment purposes.
For investment purposes only: 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.
Shorter repayment period: 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.

Interest Rates and Loan Terms

Understanding the interest rate and loan terms is crucial when considering a land loan in Florida. Typically, the interest rates on land loans are higher than those for traditional mortgages due to the increased risk to the lender.

Borrowers might encounter loan rates ranging from 10% to 15%, depending on their credit score, the loan amount, and the type of land being purchased. Fixed-rate loans offer stability with a constant interest rate over the loan term, whereas variable rates might fluctuate, impacting monthly payments.

The Importance of a Good Credit Score

A good credit score can significantly impact your ability to secure favorable loan terms and lower interest rates. Lenders assess your creditworthiness based on your credit score, which reflects your financial responsibility and history of repaying debts.

Borrowers with higher credit scores are typically offered better rates and more favorable loan terms, making it crucial to maintain a good credit score when seeking land financing.

Loan Process and Disclosures

The loan process for land financing involves several steps, including application, underwriting, and closing. During application, lenders will request IDs, bank statements, and information pertaining to the asset in order to assess your loan request. Underwriting involves a more detailed examination of your financial strength as the sponsor, your experience investing in land, and the quality of the land.

At closing, you’ll review and sign the final loan documents, pay any closing costs, and receive the loan funds. Transparency is essential, so lenders are required to provide disclosures that outline the loan terms, interest rates, and any fees associated with the loan.

The Role of a Loan Officer

A loan officer plays a crucial role in guiding borrowers through the land loan process. They help you understand the different loan options available, assist in completing the application, and act as a liaison between you and the lender.

A knowledgeable loan officer can provide crucial, valuable insights into the loan terms, interest rates, and required documentation, ensuring a smoother loan process.

Refinancing Land Loans

Private land loans are typically short-term, with durations ranging between 12 to 24 months. A common strategy for borrowers at the end of this term is to refinance into a construction loan or other forms of permanent financing. This approach allows borrowers to transition from the initial purchase phase to development or long-term investment stages.

Refinancing a land loan can facilitate lower interest rates, lower monthly payments, or more favorable terms, aligning financial commitments with project timelines and broader investment goals.

Competitive Rates and Loan Options

As more people migrate to Florida with aspirations to build custom properties, the demand for land loans is on the rise. While Florida provides competitive rates for land loans, it's crucial for potential borrowers to shop around and explore creative financing solutions. Traditional lenders often hesitate to finance land purchases, making it essential to consider various lending sources, including credit unions, banks, and private lenders. These lenders may offer specialized programs or incentives for purchasing vacant or raw land. By thoroughly comparing options, borrowers can find the most favorable interest rates and loan terms to suit their unique needs in building their dream properties.

The Bottom Line: Should You Get a Private Land Loan in Florida?

Ultimately, there are multiple ways in which you can get a private land loan in Florida. Keep in mind that each private lender has its 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 ask your land lender during an introduction call:

What type of land do you lend on?
What states or regions do you offer land loans?
What is your minimum/maximum loan amount?
What is your max loan-to-value?
Is there a prepayment penalty?

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 bringing your dream home to life in South Florida? Contact Vaster today to learn about our competitive residential land financing for investors.

Sources:

Fixed vs. Adjustable-Rate Mortgage: What's the Difference? | Investopedia

Guide To Land Loans | Forbes Advisor

SBA 504 Loan: What It Is & How It Works

Rural Housing Site Loans | RD.USDA.gov