Pictured property: 11 acres in Pahoa, Hawai`i
The good news is that if you are in the market for vacant land, the inventory is still healthy. With all eyes on the housing situation, the largest segment of the market has been largely overlooked. Ironically, it’s also where some great values can be found. With the over 2,100 active listings on the Big Island, it would seem that vacant parcels of land would be moving briskly.
Trouble is, vacant land loans are about as rare as $2.50 gallon of gas. It’s no surprise that sales are less than brisk. So, what are sellers of vacant land in paradise to do? Excellent question. With basically only local credit unions and American Farm Credit available in the vacant land loan space, looking for a way to finance a purchase may take some scratching around.
Landing a Lender
Vacant land loans have historically been regarded as interim loans. They are designed to provide funding until a construction lender steps in. Many buyers use them as a sort of layaway plan to secure the land in order to gain equity and/or to provide time to complete the permitting process. Buyers should expect a minimum of 25% down, and when and if a lender will consider an out of state buyer, additional down payment will probably be required. As mentioned, the one bright spot for vacant land funding is still our tried-and-true, rock-solid credit unions.
Consider a Credit Union
Most local credit unions offer vacant land loans for 10-15 years, but to get the best rate, a shorter-term loan with a balloon payment due in 2-5 years is normally the best choice. Because many parcels sell cheaply here on the Big Island, signature loans will sometimes do the trick (at a much higher interest rate). By far the best funding option (especially for an investor) is a home equity loan or line of credit on your primary residence. Remember, interest on home equity loans is normally deductible up to $100,000. While these are all good options, there are still huge gaps to fill.
In the Zone
Funding for parcels in lava zones 1 & 2 has become such a huge challenge that, out of necessity, seller financing normally becomes the funding source. Financing for large parcels, no matter where they are located has always been a challenge. American Farm Credit may offer some relief especially to those with farm related activities. Their loan products have become more flexible over time. Their one constant is that the land must be zoned for agriculture. With so much of our land zoned for Ag on the Big Island, this is not usually a huge hurdle. With a patient seller, a straight construction/purchase really makes a lot of sense. Fortunately, it is still possible to purchase land as part of a construction loan package.
So if you’d like to take advantage of fabulous inventory, low interest rates, and attractive pricing — plan ahead. Ask your REALTOR® to help you analyze the best funding options for your situation. After all, you don’t want to find that $2.50 gallon of gas and have no way to pay for it.
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