Probably the most frequently asked question I receive on a regular basis from land buyers as well as other Realtors is, “Can you finance the purchase of land like you do for a home?” Many people still think that lenders are no longer financing lot and land purchases and that the only way to buy vacant land is by paying cash or receiving seller carry back financing. This was mostly true during the real estate recession years of 2007-2012 when banks and institutional lenders were weary of the risks associated with land purchases that was fueled by the large numbers of people walking away from lot loans and giving their parcels back to the lenders. Of course, probably the main reason this was so prevalent was that lenders encouraged buyers to take 80-100% loans, that they couldn’t actually afford or possibly be able to repay. With no “skin in the game” it was easy for buyers to give these properties back to their lender. But that was then and this is now.
Since the recovery began in 2013 or so, Tucson Banks, Credit Unions and Savings and Loans have returned to the practice of providing lot loans. Although the qualifications for these loans have tightened up (as they should) they are currently readily available for Tucson’s vacant land buyers. Let’s explore what I believe are the 3 ‘best’ providers of this type of financing. Please note that all the following information on rates, terms, down payments, etc. was given to me at the time of writing and is subject to change. I STRONGLY RECOMMEND THAT YOU CALL A LENDER FOR THE DETAILS OF THEIR CURRENT LOANS.
One Arizona Credit Union
One AZ offers two types of balloon loans with either a 3 or a 5 year term. Both loans require a 25% down payment and require utilities to be available to the lot line of the property. If there is no water source, they will still make the loan but increase the down payment to 35%. Interest rates at the time of this writing were quoted at between 4.875% and 5.25% depending on which term is chosen ( the shorter term would have the lower interest rate). Payments are calculated using a 25 year amortization schedule and the cost of the loan is .25% of the loan amount. Typically they will loan on parcels up to 10 acres and will require the buyer to submit a percolation test if the lot is not served by a sewer system. They also provide construction loans when the borrower is ready to build their home.
For further information contact Janene Grimes, 520-954-2199, jgrimes@oneazcu.com.
US Bank
US Bank provides a 3/1 ARM (Adjustable Rate Mortgage) with a current rate locked in for the first 3 years of 5.5% interest and payments based on a 30 year amortization schedule. After year 3, the rate can increase annually based on an index that they determine. On vacant parcels up to and including 5 acres, they require a 20% down payment, the lowest amount of any Tucson lender that I know of. On lots and land between 5 – 10 acres, the down payment requirement goes up to 35%. They charge a one time, $870 lender fee and an appraisal fee of $450. They only require that the parcel is served by an electric provider and don’t require a perc test to be done. A current water source for the property is not a requirement as they presume that the buyer will connect to a provider or drill a well when ready to build. Construction Loans are also provided by US Bank.
For further information contact Jim Roberts, 520-631-4871, james.roberts1@usbank.com.
Washington Federal, soon to be known as WAFD Bank
WAFD offers two lot loan programs; a fully amortizing 20 year loan and a 2 year interest only loan. The 20 year loan requires a 30% down payment and has a current interest rate of 6%. They charge 1% of the loan amount as an origination fee and a $750 document preparation fee. This is the only ‘long term’ lot loan available in Tucson. All of the others that I’m familiar with are for 5 years or less. The interest only loan also requires a 30% down payment, has a current rate of 5.875% with an origination fee of 1.5% of the loan amount and same document preparation fee. Similar to One AZ, they require utilities to be available to the parcel and a perc test must be done prior to closing. They also offer a Construction Loan to borrowers which must be applied for within 30 months of the lot loan closing.
For further information contact Kim Dees, 520-232-5329, kim.dees@wafd.com.
There are a few other local lenders that offer lot and land loan programs such as National Bank of Tucson and Commerce Bank but the 3 profiled above account for the majority of lot loans currently being closed in Tucson. That being said, if you have a relationship with a lender it’s always a good idea to check with them to see if they have a special program for their customers.
