Section Loan
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How to Purchase Land with a Section Loan
If you have been looking for you dream home and just haven’t found it, there is always the option to just build it yourself. Building a home is difficult, takes time, and isn’t always the cheapest option. However, you will get exactly what you want. Also, the house will be completely new, which means that everything will be updated under the most current codes and the appliances will be fresh and unused. Sometimes the best option is to just buy vacant land and work from a blank slate. This can allow you to make sure that everything is exactly how you want it. It also doesn’t limit you on where to look.
You could literally build anywhere that there is open space, a willing seller, and proper regulations. The main thing that may be holding you back are the funds to actually pay the purchase price. If you need financing for the vacant lot via a buy land loan or a section loan, then you need to understand the way mortgages work. Since there is no house on the property, you won’t be getting a home equity loan or a home first mortgage.
What is a Buy Land Loan?
A buy land loan allows you to buy a vacant lot with the intention of building on it. This is a great way to get access to a location without to having to fund the full price of a house. If you are looking to buy in an expensive area, you may be priced out of an existing home. However, vacant land is cheaper and readily available. This means that you could buy the land with a buy land loan or a section loan that uses the vacant land as collateral.
A buy land loan allows you to This will allow you to hold onto the property while you get the engineering designs done and get a contractor on board for the design-build job. You may even want to hold onto the land while land prices go up or just flip the property to a developer when the time is right Though you may be tempted to hang on to the land with a wish of flipping it for profit (known as land banking), most lenders will want you to begin building on the land within 12 months of purchase and frown on land speculation or any postponement of construction. Regardless of the reason, getting the land is the primary goal and main consideration. This is the purpose of the buy land loan and section loan. Banks want to get you the title to the land and improve it with the least number of hurdles.
Should I work with a real estate agent?
Yes, having a real estate agent on your side will benefit you in the long run. They can help with all of the paperwork, legalities, house hunting, and negotiating all of the final costs. If you are moving to a new area or are planning on a life change, i.e. kids or extended family, they can help you find the home size that fits your needs, and the community services to improve your quality of life. The right schools and the right social services can truly change your life for the better. All of these are benefits from having a real estate agent.
How Do You Know What You Qualify For?
Your income, credit, and current debt obligations always will be a consideration. However, that is standard. That isn’t anything new for a loan, particularly a loan for a vacant lot or large amount of undeveloped land. Generally, though, a loan for a piece of property will require a larger deposit amount, as compared to a home equity mortgage or a first home mortgage. You willmay be required to front 20% of the value for fully-serviced land and – 50 % of the value for undevelopedof the land, and can to finance the remaining portion. Hopefully, the bank appraisal for the loan comes in high enough to fund the remaining amount of unpaid capital.
Make sure that you talk with a mortgage broker to ensure that you are getting the right section loan for the land that you want. A mortgage broker has access to a larger number of financial products and bank contacts, allowing you to sign on to the financing plan that best works with your specific circumstances.
If you are buying a piece of property within 50 kilometers of a city boundaries, the loan can be funded with a deposit of anywhere between 20 and 50% of the property value. Further, the land must either already have access to connected utilities or be able to be easily connected to utilities. The lot must also have access to public roads and not be landlocked. In order to finalize the loan, you will need to show that the purpose of the purchase is to build on the land within 5 years.
Most property in New Zealand has a fee simple aka freehold title, meaning that you can make changes to your property any changes to the title. There are two major types of land in New Zealand; Non-urban land, which is mostly farmland for agacultural purposes, and Urban land. Urban land is subdivided for specific uses, as follows:
- Single house zone
- Mixed housing suburban zone
- Mixed housing urban zone
- Terrace housing and apartment zone
Rural zone - Mixed use, general use and business park zones
All of these have different building requirements so you need to know what you can do with your particular type of land.
If the land is outside of 50 kilometers from the city boundaries, then the land is considered a lifestyle property. This means that the initial finding of the loan is likely to be higher than 20% and potentially upwards of 50%. The value of any income from the property will be deducted from the value of the property and the down payment is calculated on the net value. The property is still required to be near a city center or urban zone.
Should You Do A Construction Loan as Well?
If you can’t afford the price of the land, there may be a good chance that you can’t actually afford to build a home on the property either. If this is the case, then you need to make a decision about your future. Getting a buy land loan or a section loan is used to purchase the property, however, if you are planning on building or improving in some way on the property this won’t be enough to help finance the construction.
Instead, you need to consider a design-build loan, or what is more commonly referred to as a construction loan. When you are able to fully fund a property development, including the initial purchase of the property, you can get immediate access to funds to begin building on the empty lot as soon as you are ready. That way you can draw down the funds from the bank as quickly or as slowly as you like as it is needed with continued progress payments. The benefit here is that the bank knows that construction is progressing and is able to providefront more money to the construction with the guarantee that a specific home with specific designs is being will be built. Their collateral is the final new construction and your collateral is the down payment and equitythe cash in hand.
Always know what you want first. When you are ready to start investigating buy land loans or section loans you should speak to a mortgage broker who can step you through the process of property finance. Make sure that you know where you want to buy and even better, what type of house you would like to build. The more information you have the better your mortgage broker will be able to custom develop a financial product for your specific circumstances.
