Buying land to build a house or commercial property is a bit different from buying a house with land. What kind of credit score do you need to buy land?
Credit scores can be confusing in themselves. Knowing the right threshold for a credit score before buying land can require some different knowledge, as banks and lenders treat land buys differently.
A good credit score to have when trying to buy land for development is around 720 on the FICO scale. This is overall considered excellent. You'll also need some other plans in place, including an intended use for the land as well as a report indicating how prepared the land is for occupation.
We'll walk you through more info about credit scores, as well as if and why home buying credit scores are different. We'll also cover information about how to find and improve your credit score to qualify for land.
We've bought land and houses before and have looked at information from major banks. We've found good, specific info about what some banks will require of you to best prepare you for the buying process.
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What credit score do I need to buy land?
The good news here is that there isn't a specific credit score you need to buy land. With the right lender, it is possible to get a land loan with almost any credit score – the challenge will be getting good terms on your loan.
A bank will always see a loan as a risk. They are sending money to the land owner, and you'll pay them back incrementally, potentially over the course of 30 or more years. Banks make money off interest. A person with less than excellent credit will likely have a higher interest rate, so borrowing money to pay off the loan will cost more in the long run.
A more concrete answer to this question is that you'll get the best deal on a land loan if your score is above 720 on the commonly used FICO scale – or if your credit is rated as Excellent. While it is possible to get a land loan with a lower credit score, you'll probably need more money down to secure the loan, and your interest rate will be higher.
My credit score is below excellent or 720. What can I do to improve my credit score?
If you have a credit score below the threshold that would normally make it easy to buy land, there are a few things you can do to improve it to have better terms on your loan. We'll be honest that some of these are easier said than done, especially if you have some excess debt and not enough cash.
Pay down your debt
Many land buyers have debt in the form of auto loans, home loans, personal loans, or credit cards. The amount you pay monthly, especially on credit cards, weighs heavily on your credit score and the amount you can borrow, and the interest paid to do so. We would focus primarily on unsecured debt like credit cards first. This is both because they are the most expensive debt to carry and because a lending bank will look upon credit card debt most. It's also worth saying that you don't need to pay off your balances completely. Just having less revolving debt can play a big factor in getting approved with better terms.
Save some cash
This can be a hard one to balance with paying off debt. Have a down payment in cash saved up, and keep saving. The more you can put down in cash to begin a land loan; the lower your monthly payment can be.
On the counter of this, you should only give the bank as much cash as you need to keep your monthly payment on track. In other words, don't put an excessive amount down so long as you qualify and are capable of making the monthly payment. You could use the excessive amount to invest in higher-yield investments than your land, like mutual bonds, stocks, or other personal investments.
Don't open new accounts
When you are in the process of buying land, you'll want to refrain from opening new debt – especially after you've begun the process of qualifying. You are under the microscope while qualifying and should be very responsible about opening anything new – or acquiring anything on a credit card. We've heard horror stories of couples leasing two new cars while qualifying for a land loan – not a great idea unless you already have outstanding credit.
Is the credit score requirement for a house different than for land?
Yes, in a way. A house doesn't often need Excellent credit though it absolutely helps in getting the best terms on your loan. You might be wondering why, though! A house tends to have more capital built in – there is something of value built on a plot of land that the bank can sell with minimal effort if you fail to pay the loan. Land can be quite different in that it often requires more of an investment in terms of getting it ready for use and is harder to resell if the economy sours. Buyers in worse economies tend to look for already improved land to avoid having to invest more cash into it.
A construction or land loan also tends to be shorter term since there is no permanent structure yet, making it require more cash down and harder qualifications.
How much cash will I have to put down?
This deserves an “it depends” answer, but we'll give some broad specifics. The down payment required can be up to 30 to 50%. In case that sounds like a lot – it is much higher than a traditional home loan, which can be as low as 3.5 and as high as 20%. This number reflects the high-risk lenders see when borrowing money to buy land.
Are land loans harder to get?
In addition to often needing a bigger down payment and a higher credit score, there are fewer companies that will lend you money to buy land. You'll also need to provide the lender with information about utilities and other aspects of the land that could make it liveable in the event you plan to make it your home or commercial property.
Though land loans are more difficult to get – they can be 100% worth it. If you've spent your adult life maintaining good credit and saving up, you can build your dream home without having to work with someone's templated house. You can also take your own sweet time to build it instead of working on someone else's timeline.
About THE AUTHOR
Brittany has been in the land business since 2020 when the world was starting to shut down because of COVID-19. 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