How to Compare Lot Loans

Building a house on a lovely lot is certainly the dream of many. It all begins with buying your lot, and that process starts with a lot loan from a lender. By taking a little time and comparing lot loans, you can get a good loan that will enable you to build your dream house.

Difficulty: Easy

Instructions

1. Research the various programs that are available and understand the terms and conditions that come with these type of loans. Be sure to look at programs that allow these loans to be converted to construction loans by allowing you to redraw the funds.

2. Decide what kind of loan may be best for you. Should you get a fixed rate mortgage or an adjustable rate mortgage? Depending on your situation and the economy, it will make a difference in the long run.
   

3. Start the process by getting online quotes from more than one company. If you use a brokerage Web site, use more than one. This will help you to see what one broker does with fees and other costs compared to another one.

4. Separate the fees from the base cost of the loan. When it comes to the total cost of the loan, there can be a lot of separate little fees. This will let you see what charges each lender puts on the loan.

5. Evaluate similar types of loans together. This means that you need to compare the fixed rate loans together and the adjustable rate loans together. Anything else is like comparing apples to oranges.

6. Check on loan convertibility. Find out how easily this type of loan can be converted into a construction loan, and then into a first mortgage. Many lenders offer programs where the one automatically rolls into the other and saves you money.

7. Investigate the lender you are considering. Check with the Better Business Bureau for any negative business dealings and complaints.

8. Sign the deal and celebrate. You've earned it.

Tips & Warnings

• In most cases, you need to be ready to build your primary or secondary residence on the property within 5 years. You will probably not be able to get a lot loan without meeting this requirement.
• Working with a bank or agency that gives a lot of loans to people that want to develop land, or eventually build, you will find that they offer a wider variety of loans that are more likely to suit your needs.
• Remember that an online application is not the same thing as the actual process. Filling out the real forms may result in slightly different numbers because they must do actual credit checks and get an appraisal of the land.
• Check to see if there is an Early Redemption Charge (ERC) on the lot loan. This enables the lender to still get a healthy portion of their interest even if you pay the loan off early. You can do without this being in the contract. See if you can get it negotiated out or take your loan application elsewhere.