For homebuyers who are looking to build their dream home, a lot loan helps them purchase the lot of land to build upon. A lot loan is notably different from a construction loan, which is used to cover the costs of construction, as opposed to the actual land being built upon.
The requirements for lot loans vary, depending on the lender. Lot loans tend to have strict requirements, since they are considered a risky loan for lenders. Because there isn’t any collateral to use on the land, the terms are usually higher.
Here are some of the criteria that borrowers need to meet to qualify for a lot loan:
One of the most popular things to do with a lot loan is to restructure it into a construction loan, after you are ready to start building. This is due to the fact that the timeline for repaying a lot loan is usually shorter. This can also make it easier to qualify for a construction loan, since you will already have established a relationship with the lender.