Local vs Online Mortgage Lenders: Accountability
by Alicia A. from Fresno, CA
Ask Kate about local vs online mortgage lenders: Alicia needs a lot loan to build a home. But her online lender lacks accountability. She asks for help but my solution may surprise you... Hometown lenders vs online institutions for specialty mortgage origination.
Ask Kate: Which Banks Offer Lot Loan Financing By Alicia A. from Fresno, CA
We found a vacant land lot for a residential construction in Palm Springs, CA.
We want to purchase the lot initially so that we have the land. We would then look to finance or pay outright for the construction (a headache for later down the line!) but the first hurdle and one we've found to be terrible is the finance of the vacant land lot. Our realtor has been great and very patient - He found apparently the only bank willing to lend on vacant land.
I understand lenders are hesitant to lend on vacant land as it's a little more risky for them but even still the land is 0.25 acres, $200,000 with a 20 percent down payment. My credit history is blemish free and not an issue. In the grand scheme of things, it's a loan of $160,000, not a lot of money.
US Bank, I have to say, has been a complete and utter nightmare - this process has taken thus far 5 months! On a weekly basis they have emailed me or called me 'this is missing' or 'this needs to be notarised' or 'your address is wrong', in short a litany of non-existent issues and mistakes as the case is handed around to new case workers but all sorted out by me in the end.
I think they took the attitude 'they need us so we can sit back and they can do the work on this one' and after reading online reviews of US Bank, it appears those observations might be broadly correct.
So... After 5 months of frustration and continually moving escrow out and going back and forth, I had to walk away from them as a lender. Heartbreaking as this is my and my partner's dream.
After some searching, you may be our last beacon of hope!
Internet links lead us nowhere just to forums which provide tips on land lot finance but nothing which actually says 'XYZ Bank lend on vacant land' or 'ABC Corp lend' etc - they all come up short on help.
Can you please help with the names of finance companies, lenders, mortgage companies, banks or credit unions who will consider lending money on a vacant land lot in California? We'll consider anyone, regardless of size. There must be someone some where which will lend!
We can even make the down payment larger if need be.
Yours sincerely and hopefully, Alicia
Kate's Answer: Which Banks Offer Lot Loan Financing
Getting a lot loan mortgage has never been a simple feat for borrowers who wish to build their dream home.
Many financial institutions won't entertain lending on raw land, as you found, because a lot loan that goes into foreclosure is more difficult to sell than the typical single family residence.
Difficulties of Securing a Lot Loan
Even banks who agree to loan on raw land seem to be half-hearted, dragging their feet. The incessant request for additional paperwork and bits of information often wears down even the most dedicated borrower. I suspect you strongly agree.
In direct response to your plea, I want you to know I am not ignoring you. But it's virtually impossible to maintain a list of reliable lending institutions and their available programs because of the constant changes in the industry. But I can tell you how to find a mortgage lender
, in your case, one who is willing to lend on raw land.
For this, I do have a few pointers.
1. Using Local vs Online Mortgage Lenders
Firstly, I recommend searching for a local lender, one that you can look in the eye while you ask for updates. This doesn't mean you must forgo online convenience during the mortgage loan approval process. But it does give you the option to sit in front of the loan representative (and manager, if necessary) should the process grow stagnant.
Conversely, it's just too easy for an online lender who is not involved in your local community to backburner your loan process if the going gets tough. Think: Accountability or lack thereof.
Before beginning your search, use my mortgage planner to organize paperwork required for loan approval.
2. Start at the Obvious
If you spend more time in Fresno than Palm Springs, I'd begin the search in your hometown. Assuming you trust your bank, sit down with them first. Ask for a written loan estimate but keep in mind, you will need to update the interest rate and closing costs at a later date. (If you are lucky enough to find a handful of lenders who offer lot loans, you will want to update quotes on the same day so you can accurately compare mortgage rates and fees.) Learn how to read a Loan Estimate form like a pro
3. Develop a Local Lender List
Next, develop your own list of local big-box lenders, credit unions, small banks, and mortgage brokers. While you'll be asking for mortgage rates and closing fees, your main emphasis is to find a lender that lends on raw land.
It will be important to disclose well and septic status, if applicable. Additionally, discuss the requirements for private roads leading into the prospective property. Fire hydrant accessibility will be another hot button. In other words, don't just ask if the lender offers mortgages on raw land. Probing for requirements will head off surprises for both the lender and you down the road.
4. Combine Local with Online
While staying in touch with a lender in your hometown is convenient, shopping for lenders in the area where you plan to purchase the land has it advantages. Because they know the area so well, they can tell you upfront what type of lot to avoid. They will also know local real estate agents who specialize in land transactions.
To find the lender in another city could mean you begin the search online. But the same principle applies, get a lender with a physical office and plan to visit them in person. Here are 6 simple steps to organize your initial online search
5. Insist on Accountability
There is no way around it, you have extensive legwork ahead of you. Although the valuable time wasted by US Bank has delayed your home building schedule, I am confident that you can still find an accountable mortgage lender who offers lot loans via a personalized loan process.
Lot Loan Down Payment
By the way, I would plan on offering a down payment of 30 percent rather than 20 percent. But consider keeping this in your back pocket and offering it if a twist comes up in the approval process. See How to Cure Mortgage Approval Hiccups
Rural Financing and Construction Loans
Mortgages in rural areas and for financing residential construction require expertise...
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