How to Determine Your Buying Power for a Land Loan

 

Debt to Asset ratio is commonly used by land lenders to determine a consumers’ buying power for a vacant land loan. This leverage ratio is a way for lenders to calculate the percentage of your assets that are financed by your debts. When a ratio is higher, this indicates more financial risk. Let’s explore the lending process for vacant land.

 

The Debt to Asset ratio

The debt to asset ratio can show a lender how much of your assets are leveraged by your debts, the ability you have to repay your debts and the risk associated with lending money to you.  Land lenders primarily look at debt to asset ratios while residential lenders usually look at debt to income. This means that you could easily be approved for a home; however, a land lender might turn you down for a vacant land loan because it is considered a risker loan.

 

Why is land considered a risky loan?

Some traditional lenders consider land to be a risker loan because they do not understand the resale value. With a smaller market for land, and no home to see or touch, traditional banks get worried that they will not be able to sale the property as quickly if a buyer were to default. Additionally, if a buyer is hit by financial hardships, they are much more likely to default on a piece of land than they are on their home. Therefore, many traditional banks will not lend for raw land properties.

While interest rates for land will vary based on available lenders, often you will find that loans for land are 1%-1.5% higher than current home mortgage rates. In addition to higher interest rates, you may also find that land loans require higher down payments as well. On the bright side, land lenders know the product and have specialized experience in land. This experience will often make the closing go more smoothly while allowing for less delays and surprises.

 

How to calculate your buying power

When preparing to apply for a loan make a list of all your debts and assets. Assets refer to all properties, possessions, bank account totals, businesses, automobiles, equipment, investments, and other items that have an associated cash value.  Debts refer to short-term and long-term payments that you are making. These can include home loans, student loans, automobile payments, medical bills, credit card totals, and personal loan.

Your debt to asset ratio will be calculated as your total liabilities divided by your total assets. A high ratio is considered to be .60 or higher, which makes it much more difficult to borrow money. You will want to determine your debt to asset ratio before, and after, adding in the debt from a new property. Try this formula to determine your debt to asset ratio before a loan.

For example, if you have assets of $250,000 and liabilities of $100,000, your before-loan debt to asset ratio would be .40. To calculate your after-loan ratio let’s assume you want to borrow $120,000 on a property with a contract price of $160,000 and $40,000 in down payment. Using the above formula your after-loan debt to asset ratio would be .59.

 

How to improve your Debt to Asset ratio

The best way to improve your debt to asset ratio is to pay off debt. There are several ways to tackle this. Using the debt avalanche method, you’ll be able to pay less interest and get out of debt faster than other potential methods. Other methods of paying off debt include the snowball method, balance transfers and personal loans. It is important to find the method that is right for your situation.

 

Contact Land Line Lending when you’re ready

By now, you should understand how to determine your buying power for land. When you know it’s time to begin investing in property, get in touch with Land Line Lending to get started.

How to Improve Your Credit to Buy a Property

 

Have you been trying to buy a piece of property only to realize that your credit isn’t good enough to make the purchase?
If you’ve just started looking at real estate, chances are you have a lot of questions about what you need to do. But one thing you know for sure is that you need a high credit score to buy land.

First, take a free look at your current credit score to see where you are. Improving credit can be a 30-90 day process or longer. What can you do to improve your credit if you find yourself stuck? That’s what this article will attempt to answer. Keep reading to learn how to improve credit to buy property.

Get Your Finances Under Control

Some people use credit repair services when they realize they need to improve their credit. That’s not a bad idea, but before you do anything, it’s best to focus on improving your finances in general.

Payment history, how much credit you utilize, credit history length, type of credit, new credit or debt, and the amount of lender inquiries all factor into your overall credit score.

You don’t just want a temporary boost for your credit score. You want to change your financial future for the better. Start by organizing your finances.

Catch Up on Delinquent Accounts

If you have a history of missed payments, it could be difficult to get a loan for your new property. Go through your subscription services, utility bills, and credit card accounts, and make sure you’re current on all of them.

As long as you have good self-control, using credit cards can help improve your credit because it improves your debt-to-credit ratio. But first, you need to make sure you aren’t leaving any existing bills unpaid.

Dispute Any Credit Report Errors

You might find this surprising, but credit report mistakes are not uncommon. Because we base so much of our financial lives on our credit, this is a disturbing realization for many people.

Fortunately, disputing errors on your credit report isn’t hard to do. Creditors will usually allow consumers to dispute errors online, and the review process is fast and simple. To find and dispute errors on your credit report, you can get started with a credit management service like Experian.

Pay Down Debt to Improve Your Credit

Paying off debt isn’t exciting, but it may be the single most reliable way to improve your credit, especially if you’re interested in long-term results. There are many methods you can use to begin paying down debt. Most financial experts recommend that you start by paying off the account with the highest interest rate, then work down to your line of credit with the lowest interest. This method lets you pay off debt as efficiently as possible.

Contact Land Line Lending When You’re Ready

By now, you should understand how to improve your credit to buy a property. But your buying journey won’t end when you’ve boosted your credit score. When you know it’s time to begin investing in property, get in touch with Land Line Lending to get started.

How Can Refinancing Help You Save Money?

 

Depending on where you’re at in the life of your land loan, there might be a few things that you can do to save money in the long run.

The first thing you should do, which is the idea we’ll explore today, is to look at your refinancing land loan options. Refinancing your loan might be an excellent way to put a little extra money in your pocket for the short term and reduce the amount of interest you pay over the life of the loan.

Let’s take a look at some of the basic considerations that can help you make the right decision in this process.

Refinancing Land Loan: Is It The Right Choice?

The most important factor that you should look at is the interest rate you might be able to acquire after refinancing.

If that rate is lower than your current rate, you might be in a good position to refinance and put yourself in a better financial situation. The factors that contribute to this rate are the market, the value of your land, and your current credit in relation to the credit you had when you took out the loan.

If your credit score is looking a lot better than it was when you took out your land loan, you might be able to get a significantly lower interest rate after you refinance. Depending on the size and life of your loan, that difference could be tens of thousands of dollars.

Getting the Cash Difference

Another key part of the refinancing is that you have the ability to get the difference of the appreciated value of your land and the value of your old mortgage in cash.

If your mortgage has a remaining balance, and your property is now worth more than what you paid for it, you can do a cash-out refinance to put cash in your pocket. For example, let’s say that you have a remaining mortgage balance of $300,000 and your land is now worth $450,000, after taking into account your loan-to-value amount and any closing costs, your new loan would give you a substantial amount of cash at closing.

Now, that money could be used for whatever you like. At the same time, pitching that remainder back into the principal value of the loan can reduce your expenses drastically over time.

Not only will your principal payments be lower each month, but the fact that there is less value in the principal amount to be paid back means that your interest won’t accumulate nearly as much over the life of the loan.

Another popular scenario is to borrow on land has been paid off. You can borrow a percentage of the land value to make improvements, which in turn, will add a tremedous amount of value to your property.

Speak with a Financial Advisor

While it may seem like an objectively good idea to pull the trigger on refinancing your land, it’s always best to talk with someone in your area who understands the market and can give you their take on how the decision might affect you.

There’s nothing wrong with taking a step back and asking for a little guidance, especially when it comes to matters dealing with significant amounts of money.

Need a Little Help with Your Loan?

Looking at your refinancing land loan options might be a little complicated at times. We’re here to help you with any questions you might have throughout the process.

Explore our site for more insight and ideas into refinancing, financial advice, and more.

Property Income: Making Income on Your Land While You Aren’t Using It


If you have a piece of land that you aren’t currently using, you may want to look for ways to make some extra income from it. While a “buy and hold” strategy is a common option, there are other ways to make money with your land without selling it. Some of these options can allow you to make passive income on a continual basis.

Fortunately, we’re here to help. Below we’ll tell you about a few of the best ways that you can make money with vacant land.

1. AGRICULTURAL LEASING
Farmers are always looking for additional land for crop production. If a farmer is looking to expand their production, but does not have the ability to purchase additional land, they often look at leasing land for farming from other property owners.

If you have open land with little weeds, many farmers will lease your land for their livestock or hay production. Crop-share leases can also be a popular way to lease for agriculture.

2. RECREATIONAL USE
Another way that you can use vacant land to make money is by using it for recreational purposes. For example, you could rent out your land to tent or RV campers on a daily, weekly, or monthly basis.

As an alternative, you could also allow hunters to use the land. If there is plenty of deer on your property, many hunters would be willing to pay to gain access to it.

3. TIMBER PRODUCTION
If you aren’t planning to use your property on a long-term basis you may want to consider growing timber. Other than initial start up costs for planting the timber and the occasional management of the trees, this can provide a nice profit when you sale the wood to a saw mill later.

You could also consider purchasing a piece of land with more mature timber which would minimize the growing time you incur and could be converted after harvest for your needs.

4. HOSTING FESTIVALS AND EVENTS
Depending on the size of your land, you could also rent it out for festivals or events. There are festivals of all types and sizes and they need land to operate on, so you may want to consider offering them a venue.

You can also host other types of events on your land as well. You may be able to rent your land out for sports games, weddings, or other events.

5. LEASING TO A COMPANY
Another way that you can make money from vacant land is to make it into a solar energy farm. Leasing your land to a power company can be a great idea and can allow you to put your land to work for you, allowing you to build income in a passive way.

Similarly, you may also want to offer your land up for wind energy installations or cell phone towers.

6. SELLING BILLBOARD SPACE
If you want to make passive income with your land, another great option is to install a billboard on it. This works especially well if your land is on a busy highway or if a lot of people pass by it regularly.

Selling advertising space on your property can be a very passive way to make a bit of extra income, so it’s well worth exploring if you have some land that is in a great location.

UNDERSTAND THE COSTS OF INVESTING IN VACANT LAND
If you want to make money with vacant land, you need to make sure that you’re exploring all of the options that are out there. Make sure that you consider the ideas above if you want to make your land work for you while not in use.

Need help with land financing? Contact us today to learn to get pre-approved!

How Buying Land is Different from Buying a Home


Land lending can be a hard nut to crack. Buying a house is relatively simple. Banks lend readily for homes because individuals and families need places to live. It’s a primary mortgage and the mortgage will be paid off first in the event that the borrower defaults. Buying land isn’t a necessity. Sure it’s a great, low-risk investment. Of course, you can get enjoyment out of it while building memories with your family. Not to mention, it can be income-producing. Big banks just don’t seem to understand it. It’s a secondary loan, meaning that it falls lower on the totem pole than a home. This leads many banks to reject the idea of lending for land. Occasionally you’ll find a bank to lend on acreage but your interest rate will be higher or you borrow on an equity line using your home as collateral. It’s not entirely the fault of these banks. They just aren’t familiar with how land works. They can’t touch it like a house so it seems less marketable if they need to foreclose.

To help with this problem, Land Line Lending was created to simplify the process of lending for land buyers. We wanted fewer hoops and lower interest rates. Some stipulations are still in place, however. For instance, there is a minimum of 15 acres and $100,000 for a loan just as you might find with a traditional bank. The property can not have a home or building on the land unless that structure accounts for less than 50% of the value of the property. Land Line Lending wants to focus on the land being purchased. That’s our passion and where our understanding lies.

In closing, stick with a lending company that knows the product. This will save time and money in the long-run. Banks and mortgage brokers are great for homes because they understand them. Land Line Lending knows land!