Lot and land sales at Lake Chelan seem to be brisk right now; as I am getting inquiries every week from people wanting to finance a building lot or some land. Most people have not financed land before so I hope to remove some confusion with a little explanation. This would also apply to people financing Leavenworth land or a building lot in Wenatchee.
The first thing you will find is most lenders don't want to finance land; especially now. Land is harder to liquidate if the bank ends up taking the property back, and the national lenders who are trying to improve their loan portfolios are dropping their land financing programs. So your first place to start would be a community bank that knows the area.
The next thing you will find is that the loan programs vary widely between lenders; one will want a 30% down payment and the loan will only last 12 months, and the next will take 10% down and give you a 30 year loan. Some offer interest-only programs. Some will only do subdivision lots with full utilities, others will let you do 20 acres or more. So if you are looking at property, you better check out your financing options before you start writing an offer.
One thing that is fairly consistent amongst lenders; because land is a little more risky, there are usually minimum credit score requirements, so you better know where you stand there. I check mine at annualcredit report.com, because you don't have to sign up for any monthly monitoring service. I suggest paying the small fee to each of the three agencies so you can get your actual score; it cost me maybe $7-9 each.
As the banks are usually lending out their own money, rather than selling the loans, the underwriter can sometimes be flexible; for example, we want to see a minimum Equifax score of 680 for a lot loan, but we approved a client in the 620's because he had a credible explanation for his credit, he had a low debt-to-income ratio,and high documented income; we call these things 'strong compensating factors'. Another exception was someone who wanted to finance a 20 acre parcel with 0 down. Of course his national bank turned him down; but we looked at his overall situation and saw an enormous income with millions of dollars in the bank (the one that turned him down), so we wrote the loan. Heck, we probably would have financed a toxic waste dump for this client; it was obvious we would be paid back. On other occasions, we will write the loan to cover the lot purchase and also use another property as extra collateral if the buyer is weak in a certain area (ratios,credit score, down payment).
Before you call a lender,its a good idea to have your overall plan in mind; what are you going to do with the land and when. I would say the most common thing I hear is that the customer wants to acquire the lot now, and plans to build a home on it in 2-3 years. So try to find a loan program that fits your needs, and check the terms. If they are offering an Adjustable Rate Mortgage (ARM), is it amortized over 20 years, or 30 years? What happens after the initial period, does it adjust and keep going, or does it re-set, or does it balloon? If it adjusts, how high can it go?
If you plan to start construction soon, you may be able to combine your land purchase with your construction loan. For more information on construction loans in Eastern Washington click the link.
With the government owning about 80% of Chelan County, and much of the rest in agriculture or on steep unbuildable slopes, supply and demand points to increasing values for your land purchases. Plus the sunshine and recreation continually attracts people from the Puget Sound region to Lake Chelan, the Wenatchee Valley and Leavenworth. All this is to say, if you want a piece of it for yourself, I don't think its going to get any cheaper.
Come and take a look, and then shop around for your financing, you will find 10% down lot loans, interest only lot loans, ARMS and fixed rate lot loans; whatever you need to meet your needs.
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