It’s no secret that having a strong credit score can give you an edge in a lot of different areas in life. But can you buy land with a 700 credit score?
With many cities experiencing housing shortages, more and more buyers are choosing to purchase land and build their own homes.Up and coming investors are also getting into the game of building much-needed real estate to rent out. Developing an untouched plot of land can be beneficial and profitable in the long run, but first buyers must find a way to qualify for their land loan.
It is possible to buy land with a 700 credit score. 700 is adequate to qualify for a mortgage to buy a home. However, land loan officers usually look for a 720. If you make a 20% down payment, have a low debt-to-income ratio, can show adequate W-2 income, you can still get approved for a land loan.
There are different types of land loans. Some types of loans, like raw land loans, can be challenging to acquire for anyone, regardless of credit score, because it is a risky investment. However, improved land loans will be easier for someone with a 700 credit score to qualify for. It also helps for you to have immediate plans to build and have your contractors all lined up when you apply for land loans.
Sources include The Mortgage Report, Nolo, and Rocket Mortgage.
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Is a 700 Credit Score Good Enough to Buy Land?
Someone with a 700 credit score could probably qualify for a home loan. Most home loan officers look for a credit score of at least 680, but buyers with lower credit scores will get a higher interest rate.
When it comes to land loans, 700 is not ideal. Loan officers normally require a score of more than 720 before they approve a potential buyer for any type of land loan. There are a few reasons for this:
- Building a home on vacant land is more expensive than homeowners realize. Banks and credit unions don’t want to risk lending money to someone who could be bankrupted by the build.
- Vacant lots are initially not as profitable as rental properties, so buyers do not have an easy way to earn income off their investment.
- Without a home built on the land, the bank or credit union does not have collateral if the buyer defaults on the loan.
- Due to zoning laws, it can be challenging to predict the future home’s property value.
- If the buyer does not have immediate plans to build on the land, it is only a speculative investment, which is far more risky for both the buyer and the lender.
When you apply for a land loan, you will need to show proof of income, preferably in the form of W-2s from a long-term salaried position, as well as documented savings for a down payment, credit history, and a low debt-to-income ratio. Even if a buyer’s credit score is less than 720, they can still qualify for a land loan if they make more than a 20% down payment or have a desirable DTI ratio.
Buyers with a 700 credit score should shop around by applying for land loans through several different lenders. If you get denied by one lender, a different lender may still offer you financing for an empty lot.
How to Buy Land With a 700 Credit Score
There are 3 ways to buy land with a 700 credit score: a conventional bank loan for land, a home equity loan, or seller financing.
Conventional Bank Loan
A conventional loan from a bank or credit union is the most common way to buy land. In order to qualify for this type of loan, you will need:
- Evidence of income (1099s, W-2s, or tax forms)
- An acceptable debt-to-income ratio (most banks look for less than 43%, so the lower your debts, the better)
- Credit score (A 700 is a little lower than most banks would like, but you can overcome this if you can show income and have a low DTI)
A conventional bank loan to buy the land is separate from a bank loan for construction on the land. If you want to get construction financing from the same bank, you will need to have construction plans, cost elements, and contractors already in place.
If you do not have any immediate plans to build on the land, it may be tougher to get financing. In order to overcome this hurdle, you may need to delay the purchase and take time to build up your credit score. You can also lower your DTI by increasing your income or paying down debts.
A home equity loan may be an option for buyers who already have equity built up in their home or on another property. Banks usually have fewer requirements for equity loans than for conventional loans, so this can be an option for anyone with a 700 credit score.
When applying for an equity loan, you will still need to submit proof of income and your DTI. Because the loan uses the equity in your home as collateral, you will probably not need to make a down payment on the land.
If a buyer is unable to get financing from a bank due to their credit score, it may be possible to get seller financing. If a seller is particularly motivated to sell their land, they may offer financing for the buyer.
In this case, it is important for the seller and the buyer to draw up a legal contract that outlines the plan for the payments. An independent appraisal of the land is optional if a buyer is getting seller financing, but both parties should have lawyers look over the contracts.
While seller financing has looser requirements than bank financing, the buyer will still need to prove that they can repay the loan. The buyer may need to provide:
- Proof of income
- Construction plans for the land
- History of good credit
- Letters of recommendation from past lenders
There is no hard and fast rule regarding what you need to secure seller financing. It is up to the seller to vet buyers and determine if they are comfortable financing the purchase. For some sellers, credit score is not an issue as long as the buyer can show proof of income. Other sellers may accept letters of recommendation from past lenders in the place of a credit score.
What Type of Land Loan Can I Get With a 700 Credit Score?
There are several different types of land loans that a buyer may qualify for. While a 700 credit score is not necessarily a barrier to buying land, it may be more difficult for you to qualify for certain types of land loans.
Improved Land Loan
This type of loan is for land that already has access to roads, water, and electricity. Having utility lines already in place makes it easier and more affordable to build on the land. Improved land is also more expensive than other types of land.
Like other types of land loans, you will need to:
- Make a down payment of at least 20%
- Show proof of income
- Have a low DTI
- Have adequate credit history.
Because improved land has the most potential, it is easiest for buyers with a 700 credit score to get a loan for improved land. To secure funding, buyers should be prepared with construction plans and have their contractors all lined up.
Unimproved Land Loan
Unimproved land describes a plot that may already have certain utilities but not others. For example, a property with a road that lacks water lines, electrical lines, and natural gas lines would be considered unimproved land.
Compared to improved land loans, unimproved land loans are a little riskier for lenders due to the amount of work required to make the land profitable. If you are buying unimproved land, you will need strong plans for how you will develop the land, as well as high income, low debt, and the ability to make a 20% or more down payment.
It can be challenging to buy unimproved land with a 700 credit score because lenders usually look for better credit for this type of loan. The best way to overcome your credit score is to make a large down and have a low DBI ratio.
Raw Land Loan
Raw land is a plot of land that has not been developed at all and has no utilities, including roads. Raw land loans are the hardest to secure because it is risky for lenders to provide financing for land that needs so much work.
If you have a 700 credit score, you will probably not be able to get a raw land loan from a bank or credit union. If you are determined to purchase raw land, you may need to look into seller financing or build up your credit first.
About THE AUTHOR
Brittany has been in the land business since 2020 when the world was starting to shut down. Since then, we’ve sold to dozens of people from ATV weekend warriors to camping enthusiasts to retired truck drivers. Our inventory spans mostly in the western United States. We’ve been trained by experience, land acquisition courses, and hundreds of hours meeting with county assessors and clerks, zoning officials, realtors, and land investors. We’ve answered hundreds of questions from people regarding the buying and use of land.Read More About Brittany Melling