What is a Lot Loan and will North Carolina Banks Lend

In this video, Land Expert Eric Andrews explains what a lot loan is and why banks in North Carolina (and beyond) do not like to lend money towards them.

Speaker 1:           What is a lot loan?

Speaker 2:           So it’s whether or not you can get a mortgage on a raw piece of land. And most of the big banks are very adverse to that. Bank of America, Wells Fargo just not real happy about lot loans. They’ll do what’s known as a land home package. They will let you buy the land, but then you have to agree, “I’m going to put a house on it in a couple years.” If it’s an established subdivision, it’s a smaller lot, things are popping pretty good or whatever, you might be able to get a lot loan on… Like Chapel Ridge Golf Course right here. And local banks or regional banks will do like an 80/20 loan on that. So a $100,000 piece of property, you put $20,000 down, they’ll finance $80,000.

What I find the most difficult to tell people is that if you want to go out and buy 10, 20 or 30 acres, it’s about impossible to get a loan on that. And people are like, “Oh no, I found something on the internet.” And I’m like, “Oh no, you didn’t.” It’s just there is… The people on the internet that say that they’ll give you a $300,000 loan think that it’s a $300,000 house. They don’t understand the intricacies involved in financing raw land. So it’s extremely rare. And people are like, “Well I have 750, 780, 800 [inaudible] score.” And I’m like, “It’s not a matter of how good your credit is.”

It is a matter of how risky the loan is. And if we think of all the debts that we have? You have a mortgage. You’re going to pay that. You have a car payment. You’re going to pay that. Power bills and credit cards, you’re going to pay that. Those are all the things that you need to function and everything. Then you have a land loan? If you go in a hypothermia mode and you got to figure out which of these bills am I not going to pay, that’s one of the first things that someone’s going to stop making payments on because it’s not a necessity.

It’s not necessary. And so because of that, it’s a higher risk loan. So if you are able to find someone that’s willing to finance land, they’re usually going to be about two points higher. So if we’re an average of 4.5%, 4.25% right now, you’re looking at 6.25% to maybe even 7% or 8% interest because it’s considered a higher risk loan. They’re not going to finance it for 30 years. They’re going to do a two or three year balloon. They’re probably going to amortize it over a 15-year period instead of a 30-year period. So they’re very, very difficult to get. A lot loan on just a raw piece of land, banks do not like that product.