Deciding On A Mortgage

Most people finance their lot purchase through a local bank or nationwide lender. A good mortgage broker can help you determine who has the best programs to meet your needs. Local banks generally have more conservative criteria for loaning on land because they're heavily regulated. Large, publicly held lenders have the ability to offer creative and flexible loan programs because they mix the risk with other loans in their portfolio. Not all mortgage brokers have experience with land and construction loans, so be picky. Don't trust the phone article on this one; ask around to find the experts. Try to find a loan officer that has 100 or more loans of these types under her belt. The best way to test loan officers is to see if they ask you more questions than you ask them. If they simply try to sell you on one type
of loan without inquiring about your needs, then look for someone else to help with your loan needs.

Qualifying
The first thing a lender will ask you is whether you intend to buy the land for your own personal use. The lot-financing rates and terms for owner-occupied properties are much better than for investment properties. The lender looks to see if it makes sense for you to move to this property. If you're claiming it to be a second home, the lender will expect it to be in a resort type area or a city other than your primary residence. Buying the lot in a cheaper neighborhood on the other side of town from where you currently live will raise eyebrows. The lender next assesses your qualification on the basis of your credit report, liquid assets (cash, stock, or other easily accessible forms of money), and your debt-to-income ratio (the amount of debt you carry in the form of loans and credit card balances versus your income). Your lender's approach to these issues is very similar to how it will underwrite your construction loan;. To make its decision, the lender wants to see, at minimum, the following documentation:

Appraisal
Credit report
Three months' bank statements
Two years' W-2s and recent pay stub
Two years' tax returns, if self employed

Banks may loan you a higher percentage of the purchase price based upon the quality of your other qualifications. Being able to show good credit and sufficient income can get you a loan for 90 percent of the purchase price. If you have excellent credit, some institutional banks such as Washington Mutual and IndyMac offer "stated income" programs for purchasing lots. These loans don't require you to show any income documents (pay stubs or tax returns). Some lenders offer these loans up to 85 percent of the purchase price; however, the income you state must make sense relative to your job. A fast-food clerk supposedly making $150,000 a year isn't likely to get approved. You may need to show other documentation and meet other criteria necessary for these loans, so make sure you get the info from your loan officer before you apply.

A great way to find out what your payments would be is to use a monthly mortgage payment calculator.