Marissa Schulze from Rise High Financial Solutions has done the research for us and come up with the two types of loans that you need to consider when purchasing a vacant block.
CONSTRUCTION LOANS
If the vision you have for your land is crystal clear and you would like to start building as soon as possible, this kind of loan allows you to draw down equity in stages, providing access to funds for land purchase and construction needs separately, so you can avoid paying unnecessary interest on the entirety of your loan.
Although requirements may vary amongst lenders and depending on whether you plan the property to be owner-occupied or an investment, most will require building to commence within one and three years after the loan is granted.
VACANT LAND LOAN
As opposed to construction loans, these types of loans have the benefit of not being time-sensitive while still providing great access to equity, being the perfect fit for case scenarios in which the exact vision for the land is still in the works.
Vacant land loans can offer up to 90% of the land value and 97% loan-to-value ratio (LVR), with highly flexible terms that can extend for up to 30 years.
Whilst lenders’ mortgage insurance would still be payable on loan-to-value ratios over 80%, vacant land loans also have an additional advantage over construction loans, as they generally allow redraw facilities.
Although these two loan types are the most common when it comes to purchasing vacant land, most regular mortgage loans can also be used for this purpose.
Understanding the different features of a loan and working with a trusted mortgage broker who can assess your requirements and provide professional advice will allow you to make the most informed decision.