Pulse: Mixed Bag of Results on Minimum Down Payment for Land

The September LANDTHINK Pulse revealed that 28.9% of respondents think that 20% should be the minimum cash down payment when financing land. The saying “cash is king” still holds true when buying land; cash purchases translate to a smoother and faster closing. Most land buyers, however, are not in a position to tie up all their cash and instead take a loan to finance their land purchase.

Land is usually bought with cash and a loan, with the buyer paying a decent amount of cash down and financing the remaining balance. The amount of cash required as a minimum down payment is at the discretion of each individual lender. At present, most land buyers looking to secure a land loan most provide at least 20% down, although it’s not unheard of for lenders to require 50% or more on undeveloped land.

Lenders consider land loans to be much riskier than home loans, especially if there are no immediate plans to develop the land being purchased. Since the land itself is the loan’s collateral, lenders have the mindset that owners who have no plans to build on the property could walk away more easily than owners planning to live in a home day-to-day. Also, in the event the real estate market experiences another recession, undeveloped land traditionally loses value more than residential homes. For this reason, lenders have much stricter requirements in place for those seeking approval for a land loan. Borrowers can expect heftier down payments and scrutinization of their financial strength by the lender.

Those looking to purchase undeveloped land should not be discouraged from attempting to obtain a land loan. Lenders and land agents will work closely with buyers and do the best they can to help buyers obtain financing for land. Buyers should seek advice from several lending professionals and explore all financing options, including owner financing and home equity line of credit, which has a lower interest rate than land loans.

Last month, the September Pulse asked: When financing land, what should be the buyer’s minimum cash down payment?

The LANDTHINK audience certainly expressed mixed views on what the minimum cash down payment should be when purchasing land, as our informal online survey revealed. The results were all over the board, but the largest percentage (28.9%) indicated that 20% should be the minimum cash down payment buyers should produce when purchasing land, followed closely by 22.4% of our audience, who indicated that 10% down should be the minimum cash down payment for land. A mere 5.2% of respondents thought it should be 50% or more.

Here’s how the results panned out:

• 28.9% said 20% minimum cash down
• 22.4% said 10% minimum cash down
• 12% said 25% minimum cash down
• 9.7% said 5% minimum cash down
• 6.8% said 15% minimum cash down
• 5.9% said 0% minimum cash down
• 5.2% said 50+% minimum cash down
• 5.1 said 30% minimum cash down
• 2.1% said 35% minimum cash down
• 1.2 said 40% minimum cash down
• 0.7% said 45% minimum cash down

Thank you to everyone who participated and shared the Pulse with friends and connections in the land industry.

LANDTHINK is seeking sponsors for the November LANDTHINK Pulse Question and months thereafter. With more people spending time online during the holidays, sponsorship of the Pulse is a great way to ensure your brokerage is the first one buyers and sellers recognize and call when they have a need to buy or sell property. Leveraging our entire network of web and social media sites is a great way get your name out there during the holiday season. Pulse sponsorships are offered on a first come first serve basis and are subject to certain limitations. If your business would be interested in sponsoring next month’s November Pulse question, please contact us soon.

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