While this whole land process can get a bit boring (and repetitive), taking a break from that for a week, I wanted to post on the financing aspect of buying property. Having had about 15 mortgages from past houses, I thought I totally understood the financing part of all this. Once again, wrong!
From pursuing that first property with the really short close, I learned I couldn’t just amble into my regular bank (where I have an awesome, long-term relationship, including several past mortgages, HELOCs and refinances) and expect them to finance a land purchase. In fact very few of the large banks will touch a land loan, or a home construction loan for that matter.
However, after some online research and talking with my realtor, U.S. Bank is one of the few large institutions that would take this on. I really wanted a larger bank that would see me through my entire project. In my experience, smaller banks and especially brokers sell off your loan pretty quickly after close, and since at some point I wanted to convert my land mortgage into a construction loan, then eventually a more traditional mortgage - I thought going with someone who could handle all phases and advise me along the way might be a better bet. Maybe I'm old-fashioned, but I like building a relationship as I think you get better service, questions answered quickly and someone who really works for you.
For a land loan, all the paperwork and documentation needed is more or less the same as a home mortgage. The major differences are the down payment and interest rates. 50% down for land seemed pretty much the standard, although some lenders will go lower (including U.S. Bank) you definitely pay for it in the interest rate. Speaking of which, expect an interest rate higher than what you're seeing for a traditional mortgage - so that 3.75, or whatever you're seeing advertised will more likely be above 5.50 (or more if rates increase, but expect the proportional difference to be about the same). Lastly, most land loans are more like ARMs, so even though a 30-year length is fine, expect the initial rate will only be good for the first couple of years before it starts to adjust to whatever rates are at that time. All this suited me fine, I wanted the tax advantage on the mortgage interest, and my goal is still to convert the loan to a construction loan before the first adjustment period (which I'm assuming will be an increase). As with anything, best to shop around and find the best deal for whatever your circumstances are.