How to Compare Lot Loans

A "lot loan" is similar to a mortgage in that it is used to purchase real estate. Unlike a traditional mortgage, however, lot loans are more commonly used to purchase lots of residential land upon which a primary residence is to be built. They are also related to construction loans, but are targeted toward people who are not ready to begin building. Many lenders deal in lot loans, but the terms can be quite dissimilar. Here's how to compare lot loans to make sure you are taking all the information into consideration.


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    Gather the details of your proposed loans, including the amount to be loaned, the loan's percentage of the purchase price, interest rates, loan fees and types.
  2. Image titled Compare Lot Loans Step 2
    List or highlight the important details from each loan proposal.
    • You can make your list on paper, with columns for each lender and the loan terms listed in order.
    • You can also create your list in a spreadsheet, which may help you compare terms easier by using the sort and filter features.
  3. Image titled Compare Lot Loans Step 3
    Eliminate any loans that will not provide enough upfront capital for your proposed purchase.
    • You should seek other lenders if the loan amount plus your savings for a down payment is not equal to--or less than--the listed price of your land.
    • It is rarely advisable to borrow any portion of your down payment. Many lenders will not allow it.
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    Decide if any of the proposals include loan terms you are unwilling to accept.
    • Some loans may require a substantial balloon payment at the end of the loan's term. Balloon payments can be difficult to plan and save for.
    • Other lenders may ask for exorbitant fees that are not fully explained.
  5. Image titled Compare Lot Loans Step 5
    Total the fees required by each lender.
    • While it is possible to spend far more on a higher interest rate than by going with the lender with lower interest, but higher fees, it is still a good idea to have the details concerning upfront costs in front of you.
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    Choose between fixed or variable rates.
    • Variable rates can turn out to be a good deal, but they are always a gamble. Many consumers prefer to take a fixed interest rate, knowing that they may be able to refinance their investment should the federal prime interest rate fall far below what they are currently paying.
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    Ask your potential lenders about rolling your lot loan over into a construction loan.
    • Some lenders will allow you to do this when you are ready to begin building. This allows you to make a single monthly mortgage payment and may reduce the overall interest paid over the life of the loan.


  • Lot loans typically require a higher down payment than a conventional mortgage, simply because they are a higher risk for lenders.
  • You may be better served by putting off your purchase of land if you are uncertain that you will be ready to begin building within 2 to 3 years.

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