Using Personal Loans To Buy Land Saves Money, Increases Risk

Buying a home is a big deal. The U.S. Census Bureau said in February 2018, the average sale price of a new home across the nation was $376,700.

While not possible in all areas, some people prefer to buy land and build a dream home to their own specifications, making it cheaper. In the past few years, the number of people applying for a personal loan has increased by leaps and bounds. Some people consider constructing tiny homes while others consider investing in undeveloped plots of land to construct their homes.

If numbers are to be believed, the average price of one acre of land is about $3,080. The price obviously varies according to the locality.

People must understand that land purchase financing is not like the traditional mortgage financing. It is important to understand the rules and regulations completely before applying for a loan to purchase land.

Land purchase financing is a good option for people who do not have enough cash in their bank account. With a loan, they can also borrow the needed amount to build their home and later repay the debt.

According to Evan Roberts, co-founder of Dependable Homebuyers, there are two main types of land; lot land and raw land. He says the biggest consideration in a land loan is to see if one is buying a plot that has been barred for construction and contains utility hookups. In absence of this, the land is considered raw land. Residential plots come with a less risk as these plots are building-ready.

There are several loan programs for prebuilt homes. The programs even facilitate getting a mortgage with low down payment (3.5%). Experts say that is not possible with land purchase financing. It does not facilitate traditional mortgage. The kind of lender, down payment requirement as well as interest rates, depends on the kind of loan taken.

Zillow, the real estate site quotes that lot-land lenders ask for a down payment of about 10 to 20 percent of the total price of the land to get the loan. The loan can be paid back over 20 years. Banks as well as credit card unions offer this type of loan.

It is to be noted that most plots zoned for residential purpose by county are lot land. They are connected to roads and other utilities such as sewer, water system, electricity, etc.

Personal loans can also be financed for raw land that are sans the amenities that come with lot land. The loan for raw land is considered risky compared to the loan for lot land because there is a lot of work and expense to get utilities connected. Some banks provide raw land loans.

The experts say that personal loans are one way to finance the land purchase. Often, no down payments are required. These loans are unsecured and don’t involve putting up collateral. If numbers are to be believed, an increasing number of people are taking personal loans.

Experts say that taking personal loan is an expensive option. Interest rates could be very high. The repayment terms are also generally short.

Housing experts say that before buying land for a home, people should understand every aspect of land purchase financing. When buying a prebuilt home rather than developing land, it is easier to compare mortgages offerings to seal the best deal. So while using a personal loan to buy raw land appears to save money, it increases risk, because there is no guarantee services can be connected.

buying land for a tiny home.

Shruti Gupta is a writer and digital marketing consultant at She has a passion for technology, startups and other business topics. She lives and breathes digital marketing, and has contributed to a number of famous websites. Her aim is to spread her thought-provoking ideas to all generations.