3 Land Loan Myths You Must Bury in the Ground

House Construction in MelbourneThanks to the oversupply of completed properties in Melbourne and its surrounding suburbs, there isn’t much competition when it comes to buying land. This is good news in many ways: you have a greater chance to lock a favourable deal and the prices could stay as low as possible with less demand.

Even if they’re no longer making more of it, Australia still has plenty of vacant real estate to either diversify your investment portfolio or secure a perfect location to build on your dream house someday.

The tricky part is the financing, however. Unless you’re that well-heeled to pay for the entire cost in cash, you would need to apply for a loan to buy a desirable piece of land for sale in Taylors Hills—or other areas in Victoria with exciting developments.

Much like other financial products, you should rid of misconceptions to set your expectations right and shop around properly:

You’re Not Allowed to Build Immediately

In reality, the sooner you plan to build on vacant land, the more the lender would consider you a lower risk. Your intention to build is one of the biggest factors land loan providers assess. If you express that you have no intention to construct anything to on it at all, lenders can easily deny you.

Banks Are Your Only Option

Although land loans are offered everywhere, majority of banks are actually more conservative because vacant parcels are more prone to depreciation and more difficult to resell compared to other types of real estate. This doesn’t mean, though, it’s the end of the line if they reject you.

You could instead pursue vendor finance, which is the type of financing offered directly by the land’s seller. The interest may be slightly higher, but it definitely useful if you really want to own a particular lot.

A Large Deposit Is Necessary

Many land loan providers would require only 5% of the land’s cost, which means you could borrow up to 95% of the real estate’s estimated value. Generally, the amount you have to put down depends on the size of the block.

A land loan is not just another debt. It’s a major obligation, which requires your due diligence to avoid putting yourself in a deep financial hole.