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Why Banks Consider Lots and Land Loans To Be Unconventional

It’s difficult for buyers to secure loans for lots and land than loans for building a home. Once you understand the factors that banks take into consideration when issuing this loans, you will understand the motive behind differential treatment. Borrowers today need to have a clear information to acquire these loans. This leads us to the need for various land and lot loan advisers who will connect you to the best financiers.

Why banks consider lots and land loan to be unconventional

So, what is the issue with loans for lots and land?

gfhgfhgfhgfhgfhgfhThe banking industry has yellow flagged lots and land loans.Most of the big banks operational today experienced serious losses relating to this type of loans. During the housing market collapse, the economic downtown witnessed made them shy away from the property markets. Several banks are still recovering from the losses experienced during that period. The present oversight regulations, market uncertainties, mandatory capital requirements and stringent underwriting procedures have affected their operations. With time the banks might ease their restrictions and restore the loans for lots and lands on their books.

Forms of collateral

Most lenders consider land as a risky form of collateral when they compare it to existing homes. If the property being issued is a vacant land without any assets or structures, it qualifies as the only on-site collateral. It is not easy to convert the land into a home. The residential mortgage is the best form of collateral for a good number of lenders. There is the argument that land loan borrowers are not incentivized to repay the loan as compared to someone residing in it. It’s hard for a borrower to default on a property if it’s their primary residence at stake.

The loans for lots and land are regarded as nonconforming or unconventional loans. The non-conforming loans are not liquid to the original lenders. They cannot be sold to other secondary loan market institutions.

Avoid foreclosures at any cost

Many consumers find it hard to believe that banks have no intention in foreclosing properties. Most banks make their profits by lending out money and not investing in real estate. This means that foreclosures are not a viable option to a loan. When the banks foreclose, their residential lending groups are tasked to manage and liquidate these built homes. This is the most common loan collateral.

The Real estate owned bank groups are aware that selling a parcel of land is different from selling a home. These real estate bank-owned groups are aware of the shortfalls of selling land, so they avoid it in their standard operations. Lenders do not have the appetite for many empty or vacant land properties acquired through foreclosures.

Lot and land loans are good for business

gfhgfhgfhgfhgfhThere are banks that have realized that this is the right time for loans for lots and land to thrive. From their perspective, lot loans are a suitable way to build their businesses. Lenders without active loan programs make exceptions to acquire and retain valued banking customers. The banks hope that their new customers will begin with a lot loan and later seek construction loans and long term financing in addition to other banking products.…

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