Unfortunately, banks typically aren’t interested in lending to buyers of vacant land; therefore, owner financed land can be a great alternative to a mortgage for land buyers
Owner financing allows buyers who wouldn’t otherwise be able to enter the market to participate.
It also helps buyers spread out the cost of the land over a number of monthly payments, which can then be offset by using creative ways to make money from raw land.
Regardless of why you are interested in owner financing, here’s what you should know before you purchase owner financed land for sale.
1. The Owner May Require a Credit Check
One of the greatest benefits of an owner financed land sale is that the owner can grant a loan to anyone they wish.
This means that buyers who wouldn’t otherwise qualify for a loan can purchase land without issue.
However, it’s important to know that traditional lenders aren’t the only ones who can require credit checks.
The owner may request a credit report as well as employment history and references.
This can help them determine whether they want to grant you the loan based on how they perceive your qualifications.
If a credit check will hurt your credit score, it may be worth discussing this with the owner in advance.
For some people, a credit check isn’t an issue.
However, for others, avoiding a credit check may be a reason for seeking owner financed land to begin with.
If this credit check will impact your ability to get funding in the future, work with the owner to show other evidence of your ability to pay.
You may have a job, money or references that can verify your payment history.
Poor credit is caused by a variety of factors, and this shouldn’t be the sole reason you cannot access land ownership.
2. Down Payments are Negotiable
Negotiable down payments are one enormous benefit of owner financed land.
Perhaps the owner wants a larger down payment than the buyer is willing to make (or that the buyer has at all).
No worries! Sometimes the owner will allow the buyer to make lump-sum payments on an agreed-upon schedule toward a down payment.
It never hurts to ask!
For instance, we buy and sell land across the U.S. and have an active owner financing promotion.
There’s only a $1 down payment required on all our properties at 0% interest (plus no prepayment penalty!).
It doesn’t get much better than $1!
3. Owner Financing Is Not a Long-Term Solution
It’s unlikely that any owner financed land deal will be a long-term 30-year loan.
Why? Because owners rarely want to collect money for 30 years.
More often than not, buyers make loan payments in those first few years in the amount that would be equal to that of a 30-year loan, and then the rest is paid out in a balloon payment (more on this in #15).
If the financing terms come with a balloon payment, you will want to make sure that you can pay the balloon.
The balloon payment is an especially important consideration if you are buying higher-value tracts of land.
4. Owner Financed Land for Sale has Lower Closing Costs
There are a variety of fees and costs that exist with an institutional lender.
This includes origination fees, processing fees, administration fees, and loan or discount points.
When you eliminate the traditional lender, you eliminate these unnecessary fees and automatically lower your closing costs.
Anywhere you can cut down what you’re paying is advantageous for you!
5. The Process for Owner Financed Land Moves Faster
If you’ve never purchased a house or land before, it may amaze you just how long it can take an institutional lender to process the financing.
There’s no waiting for your application to move through a bank’s loan officer, underwriter and legal department before approval.
Owner financing takes out the middleman, leaving only the buyer and owner, who will be anxious to move the process along.
Thus, you can close faster and take possession of the property sooner.
6. Partial Financing Exists for Owner Financed Land
There may be some situations in which a buyer is able to get a loan for a percentage of the land cost, but not all of it.
In this case, the owner may offer to finance the difference.
This is called partial financing.
7. Owner Financed Land Provides a Tailored Financing Option
When it’s up to the buyer and owner, loan repayment options are often a bit more flexible.
By working together, you can find what works for you.
Here are some options:
Mixed (if the state allows it)
The owner can also decide whether the interest rate adjusts over time or remains the same for the duration of the loan.
8. Owners Have Control of the Price
The owner of the piece of land has full control of the financing and may be able to list the price at an amount above market rate in exchange for offering owner financing.
In this case, it’s up to you as the buyer to evaluate whether it’s in your budget.
You never want to get yourself into a position where you cannot afford something you’ve signed a contract for.
9. Buyers Will Need to “Sell” Themselves to the Owner
Just because you don’t have to go through a traditional lender doesn’t mean you won’t have to “sell” yourself as a qualified buyer.
The owner wants to know that you’re qualified to handle the loan they will be giving you.
This is why they may require a credit check and why it also pays to be smart and straightforward.
If you didn’t qualify for a traditional loan, why was that?
If there are any restrictions on your ability to borrow that the owner won’t find during their due diligence, then it’s worth bringing it up yourself.
You want to make sure you have a positive relationship with your lender (the owner).
Don’t sell yourself short. Make sure you volunteer any information that will help you.
10. Buyers Will Want to Confirm that the Owner is Free to Finance the Sale
Owner financed land can generally only exist when the owner owns the land outright.
This is because many mortgage providers will have a “due on sale” clause that requires the seller to pay the mortgage in the event of a sale.
Typically, this means that a mortgage cannot be held on the property, otherwise the owner financing will not be financially feasible for the seller.
The title search will confirm that the property is accurately described in the deed and that it is owned outright by the seller.
The property should be free from any mortgage or tax liens.
11. Both Parties Should Hire an Attorney to Assist
Buying and selling a property is a complex transaction that you shouldn’t enter on your own.
For high-value properties, it’s often wise for both the buyer and owner to hire either an attorney or a real estate agent to help draft a land contract and a promissory note.
A professional can also help calculate the rate of interest and monthly payments.
12. There Can Sometimes be High-Interest Rates in Owner Financed Land for Sale
Just like the price, the owner entirely controls the interest rates, and thus the rate can often be higher than traditional lenders would offer.
Why? Because the seller assumes some risk by offering owner financing and the interest rate is used to offset the risk.
While this can be frustrating, feel reassured that states often have regulations on a maximum interest rate.
Before you enter into a contract, be sure to check the interest rate and make sure it is workable for your current financial situation.
You should aim to pay off the loan as soon as possible so that the interest doesn’t accrue.
Not every owner will charge high interest. For example, we offer 0% interest on all of our properties.
13. Payments for Owner Financed Land May Not Be Reported to a Credit Bureau
Because you’re not going through a traditional lender, your payments may not be reported to a credit bureau.
This is significant only because payments that are reported can often help improve your credit score.
So, if this information will help you, then you can self-report to the major bureaus (Equifax, Experian, and TransUnion).
It’s not the easiest process, but you should also get credit for any significant payment you make.
Wouldn’t you want a future lender to know that you’re making these payments on time?
To self-report, you can try sending copies of your most recent loans to the top three bureaus along with a copy of your private loan agreements.
These pieces of information must show the payment due dates as well.
While credit bureaus have absolutely no obligation to include private owner financed loan information, they may do it if you ask them to.
You can also ask the owner (your lender) to write a letter describing your good payment history.
If taken into consideration, this can positively impact your credit score.
14. Double-Check When You’re Allowed to Build
If you’re buying land, there’s a good chance that you want to use that land for some purpose.
Whether you want to build a house, create a business or use it for some other purpose, it’s part of your due diligence as a buyer to ensure that the land can be used for your intention.
Because, even if the land is available (and you can get it more quickly than you otherwise would through owner financing), there may be other terms stipulated by the owner before you can build on it.
For instance, some owners state that you must pay 75 to 100 percent on the property before you build on it.
Why? Because if you end up defaulting on your payments, they don’t want you walking away and having to demolish your fully or partially built structure.
This requires them to spend money in order to resell.
Thus, the rule can sometimes be that you must wait to own owner financed land in full before building.
This also aligns with county building permissions in many instances.
To obtain building permits and permission, they must see the land is in your name.
This part of the process is intended to protect you as many have invested cash in a building project that has ultimately gone to waste.
However, it can be frustrating when you’re looking to move through the process quickly and don’t necessarily have the cash to purchase the land and build right after.
15. Verify Whether There Are Balloon Payments
As stated in #3, owner financed loans are often not a long-term solution.
No owner wants to be on the hook for 30 years.
They can work with buyers to some extent, but after a few years, most owners would prefer to be paid out and on their way.
This is where a balloon payment comes in, and one factor you’ll absolutely want to check before purchasing a parcel of land under the guise of “owner financed land for sale.”
A balloon payment is a one-time lump sum payment that occurs at the end of a loan.
In this type of arrangement, typically monthly payments are paid for a short period of time before the rest of the principal balance is paid.
The final payment may be paid by selling the property, refinancing or from your own personal savings.
This is a fairly common stipulation in owner financed arrangements because it often increases the return for the investors.
So, while a bank is in it for the long-haul, an owner may want you to pay the full amount after only a few years.
Be sure to clarify this upfront so you know what type of contract you’re entering into.
Please note that we do not require a balloon payment.
16 Check if There Are Early Repayment Penalties
An early repayment penalty is a fee that owners may require if you pay off a loan before the scheduled term.
Because most owners do not want to be on the hook for a loan long-term, this won’t exist in many cases.
However, it’s worth checking just in case.
After all, if you work hard to pay off a loan, the last thing you want is an additional fee just because you paid it off early.
That said, owner financed loans are often flexible, so you’ll be able to negotiate some flexibility if you think it’s likely you can pay it off quickly.
We, for instance, do not have a prepayment penalty.
17. Make Sure You Can Afford the Owner Financed Land
It’s always worth sitting down and reviewing your finances fully before moving forward with any type of loan.
Whether it’s a traditional loan or owner financed, it can be a sticky situation to lose all of the money you’ve invested into a property.
When you sign a legally enforceable contract, you want to make sure you have a clear plan for making those payments.
If it’s a stretch, it may be best to wait until you’re able to finance it fully (or at least have a solid plan to). Better safe than sorry!
Owner financed land for sale is a truly appealing option if you’re in the market and aren’t able to get a loan from a traditional lender, which is common in situations involving vacant land.
We currently have an active owner financing promotion that negates many of the drawbacks for buyers.
With a mere $1 down payment, 0 percent interest, and no prepayment penalty, it’s a best-case scenario for anyone seeking no credit check land for sale!
For more information on buying, selling, or investing in vacant land, check out our other resources below.
We’re here to help with the entire buying and selling process.
Additional ResourcesIf you are looking to buy affordable land, you can check out our Listings page. And before you buy land, make sure you check out Gokce Land Due Diligence Program. If you are looking to sell land, visit our page on how to Sell Your Land.
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Disclaimer: we are not lawyers, accountants or financial advisors and the information in this article is for informational purposes only. This article is based on our own research and experience and we do our best to keep it accurate and up-to-date, but it may contain errors. Please be sure to consult a legal or financial professional before making any investment decisions.