Q: I am within 8 to 10 years of retirement and most of my retirement funds are in my 401(k) and pension.
I want to buy a lot to build on when I retire, and the ones I like seemed to be priced to sell. But I don’t have all the cash I need.
Do you have any advice on what lenders actually want in order to lend on the purchase of a vacant lot? I only need to borrow $30,000 to $50,000, and I can easily swing putting 20 percent down. My credit score is 770.
Who might lend me such a small amount of money and on a short-term basis? I’d like to pay this off in the next 5 to 8 years.
A: Residential mortgage lenders will generally not lend on vacant land. You’d have to go to a commercial lender and they won’t generally do it because you won’t have any income coming in on the property. Also, the amount you want to borrow is very small for a commercial loan.
I have two suggestions for you. First, see if the owner of the lot might finance the purchase for you. If the owner doesn’t have a loan on the property, and you’re willing to pay a slightly higher interest rate in order to secure the financing, an owner-financed deal might work well all around.
The other suggestion is to see if you can borrow against your primary residence and then use the cash to buy the lot. The problem here is not many lenders are doing home equity lines of credit (HELOCs) these days. These loans have been trashed in the housing crisis and lenders have taken a bit hit.
The bottom line is that your options are limited when it comes to financing vacant land and other investment properties. While there are companies out there that might offer to help you, you will find that there are fewer banks and lenders willing to help you out. You may find a mortgage broker with contacts that can help you out, but you need to make sure you understand what that person offers you, the costs involved and what it will cost you in the long term.
If you need to hold on to the land for ten years and finance your ownership for that time period, you need to add that expense into your long-term ownership costs. Will buying now give you the benefit of the lower price? Maybe. But you if land prices don’t really appreciate, you may find that the carrying costs of holding the land all those years will outweigh any price appreciation you’d enjoy by buying now.
Please consult with a real estate attorney for more options.