California Land Loan Overview:
The intent of this article is to get you thinking in the right direction so you know what kind of California land to buy and what you can reasonably expect as you get started in the process of dealing with a land lender in California.
California Land Financing Budget (Example):
Land Purchase Price $300,000 Land Purchase Price
Soft Cost of Construction $ 40,000 Plans and Permits
Hard Cost of Construction $350,000 Construction Costs
Closing Costs $ 22,000 Fees, Title, and Escrow.
5% Misc. Reserve $ 17,500 5% of Construction Costs
Loan Interest Reserve $ 35,000 Interest On Amount Drawn
Total Building Cost $764,500
Appraised Value $800,000 Estimated Value of Land with Building Completed
Down Payment $191,125 25% of $764,500
Benefits of California Land Lenders
Loan officers dealing with California land should be able to assist you with the following information:
Assessment of the estimated yearly taxes, insurances, and HOA fees.
Approximate interest rate for the loan.
Down payment required.
Interpretation of your personal financial statements, credit scores, and income-to-debt ratios to conclude your eligibility.
Utilities Lead to the Path of Finance
One important thing to consider as you look to buy California land is utilities. When construction developers go into the construction stage to build new homes in Southern California then roads and utilities are built for a large number of homes. When the lender knows that a lot has public road access and utilities nearby they are often more willing to supply financing for the land because there is a foreseeable capacity to build on it which increase the California real estate worth and lowers the risk to the lender. The cost of installing utilities on a lot is not considered part of the hard construction costs for building.
Land Loans from a California Lender's POV
California land loans are more risky to lenders than residential loans. The reason for this is that normally most people do not live on the land they buy since it's vacant. As a result it is industry practice to not consider land a primary residence until something is built, and so it follows that vacant land is called investment property even if a person intends to build on it in the near future. Also, vacant land is called commercial property in California, that is property used for an investment purpose, even if the land is zoned residential and there are plans in place to build a primary residence. The importance of this categorization for lenders is that their risk increases on lending for land because a person can walk away from a land loan easier than a loan on a primary residence since the borrower has another place to live hypothetically.
