Review the laws pertaining in your state: The taking out of a mortgage loan for financing a piece of land is slightly different from the process in which you can take out a traditional mortgage for buying a house. You first need to review the laws pertaining to your state and get to know about them. There are different states in which different rules govern the land contract sales and purchases. Pay extra attention to the interest rate and the other terms and conditions so that you may strike a perfect deal.

Negotiate with the lending company: You also need to negotiate with your lender about the interest rates on the mortgage loan, the terms and the length of repayment of the loan. It is very important that you must be careful about the price at which you’re buying in accordance with the interest rate. There are some additional items that are there in the land mortgage like making 10-20% down payment, regular monthly payments and there are also prepayment options, much like a home loan.

Try to choose a balloon mortgage: Most lenders who offer mortgage loan for purchasing house do not lend borrowers with a land mortgage. After negotiating with local banks and individual brokers, you may still not manage a long term loan. It is unlikely that you will get a mortgage where you ca repay within 30-40 years. Thus, it is best that you take up a balloon mortgage loan.

Loans carry a greater loan-to-value ratio: Unlike traditional mortgage loans, land mortgages carry a greater loan-to-value ratio which means that the loan will not cover much of the appraised value of the land. The reason of having a greater loan-to-value ratio is that the repayment term of the loan is nearly half of that of a traditional mortgage.

Therefore, if you’re looking for buying a piece of land, make sure that you determine your affordability just as you ask yourself ‘how much house can I afford’ before buying a house. Consider the steps mentioned above so that you can easily get a land mortgage and finance the piece of land that you wish to buy.