Some people decide to design and build the home of their dreams, but are in need of a loan that will help them buy the land to place it on. So because many times borrowers are in need of this financial assistance mortgage lenders will often offer what is called a lot loan. You can go to your local mortgage lender or bank to apply for this type of loan to either build your primary residence, or possible even a secondary home you intend to rent out.
The money lent to the borrower is only used to allow the land to be purchased before the construction begins. A lot of times people will get this type of loan confused with a construction loan. But they are actually very different because with a lot loan the mortgage company will lend the borrower money for the land in which they intend to start building their home, and a construction mortgage is cash for the building to begin including the needed materials and the workers to begin construction.
Sometimes when the borrower is ready to begin constructing their home certain lenders will actually transfer the former lot loan into a new construction loan to help the borrower begin building the property. If the borrower has full intention of financing the property after it is completely built they can now request from their lender that the construction loan be transferred to a regular home mortgage loan. By this time you will have a home that you designed to fit your families needs, or even maybe rent out the property for a monthly profit.
If your wondering what terms come along with this type of loan be aware that they will differ depending on the lending company in which you choose. Typically this type of loan will either be a fixed rate or an adjustable rate mortgage (ARM). The specific terms will vary depending on the mortgage lender because usually the term of the loan is very short. During the monthly payments the borrower will be required to pay either interest only or principle and interest payments. Most of the time lot loans will be given in a lump-sum to the buyer.
Lenders will not automatically qualify any borrower for this type of loan. You must first meet the guidelines and also prove to the lender your intentions of the lot and what you are planning to build. Keep in mind that with any type of loan your credit rating and down payment will also play a major role in qualifying.