What Are The Difference Between Home Loan And Land Loan

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Buying a new house or a plot of land may not look to be different to a lot of people.  Both purchases would be referred to as purchasing property; however, there’re differences which should be taken into account while seeking loans.

Home loans are available for properties that are under construction, need rehab or are complete turnkey structures, whereas land loans are accessible for buying a plot of land for building a home or for investment purpose. Here in this blog, we will discuss about the difference between a home loan and a land loan in California.

Location of properties & purpose:

You can get home loans for turnkey properties, properties under construction or properties in need of rehab, major or minor. You can also get land loans for the purchase of raw, regardless of whether the land is residential, commercial, industrial or has another purpose.

Loan to value ratio (LTV)/loan to cost ratio (LCR):

Loan to value/loan to cost ratio is the ratio of loan amount you can get compared to a value/cost of the property. LTV/LCR ratio for house loans can max out between 75 to 90 percent.  For a land loan, however, the maximum Loan to value is capped at 50 percent of the property value.This means that if you are looking to purchase land, you should plan to put 50 percent of the purchase price down (or find a seller willing to carry back).

Term of the loan:

Compared to land loans the loan term for home loans can much longer. Home loans can be made for 30, sometimes even 40 year terms.  Land loans, on the other hand, typically have much shorter durations.  2-3 years on the term is fairly typical.

Tax benefits:

There may be tax benefits to the various loans, whether there is a structure or not on the property.  It is always wise to consult a tax professional to see what advantages or disadvantages you may face on any particular transaction.

Regardless of whether you are looking for a land loan for a purchase, refinance or to improve the property, All California Lending can help. They have access to both private & institutional funds and can help with your land loan request on both small lots and large acreage, as well as improved & unimproved land.
Location: California, USA

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