It has become increasingly difficult, even for private and hard money lenders, to underwrite land acquisition loans. In this two-part series, we will present nine things that will make it easier for borrowers to acquire financing to purchase undeveloped land:

1. Choose land with a good geographic location. While some lenders will consider land located in secondary, tertiary, and rural market (usually on a case-by-case basis), your land deal has a much greater chance of being approved if it is located in a prime location with substantial population, stable or increasing home values, and low unemployment rates. When considering land purchases on a case-by-case basis, lenders are likely to focus on local market conditions rather than overall national conditions. This is often the case even when the land is in a major market location because the raw land sector of the market is much more volatile than other commercial markets. Geographic location can also play an important role in choosing a lender as many will only lend within certain geographic areas.
2. Don’t expect a nonrecourse loan. Although borrowers often seek out private or hard money lenders because they will underwrite nonrecourse loans, this is much less likely when it comes to financing for land purchases. Most land lenders will require a full recourse loan with a personal guarantee in order for a borrower to qualify for the highest loan-to-value (LTV) ratio and best loan terms. If you do find a lender willing to fund a nonrecourse loan for a land deal, it will likely have higher interest rates and lower LTVs than full recourse loans; however, private lenders do have the flexibility to craft deals to their liking and good private lenders often prove themselves to be willing to negotiate with reasonable borrowers.
3. Plan a repayment strategy. Because private and hard money lenders are short-term lenders, having an exit strategy is a key part of getting your land loan request approved. While there used to be a number of exit strategies available to investors in raw land (e.g., sell to another investor at a higher price, refinance with another lender, etc.), now there are usually two main repayment strategies: sell it to a developer or builder or build it out yourself.
4. Have your loan application materials ready before you contact your lender. Private and hard money lenders strive to respond quickly to loan requests and applications; therefore, you should be prepared with all necessary documentation and a summary of the deal and your plans for it so that no one feels their time is being wasted. Your summary should do the following: explain the deal; specify the loan request; detail how the funds will be used; provide support for the valuation of the property; supply information about the borrower; include a location map; mention the status of entitlements and zoning; and summarize the repayment strategy.

Check out the first part of this blog for more tips on how to finance your land acquisition loan. Or contact us at Montegra to find out more about our land acquisition loan program.