Buying land can be an exciting yet daunting process. With so many options and financing types to consider, it's easy to feel overwhelmed. One increasingly popular route is owner financing (also called seller financing), where the seller carries the loan instead of a bank and can lower the barrier of entry for those who want to buy land. But is this financing method right for you? This guide breaks down the pros and cons of owner financing on land to help you make an informed decision.

We’ll compare owner financing to traditional bank loans, looking at factors like interest rates, repayment terms, fees, and more. You’ll learn the top advantages of owner financing, like quicker approvals, favorable down payments, and fewer fees. We’ll also review the potential drawbacks, including less flexible rates, the risk of scams, and the possibility of balloon payments.

Whether you’re a first-time land buyer or looking to expand your portfolio, read on to find out if owner financing could be a good fit. With a solid understanding of this alternative financing option, you can pursue your land ownership goals with confidence.

What Is Owner Financing?

Owner financing, also called seller financing, is when the seller of the land acts as the bank and financiers the purchase directly instead of going through a traditional lender like a bank or credit union.

With owner financing, the buyer will typically make a down payment to the seller, usually 10-20% of the purchase price. Then the remaining balance is paid back to the seller in installments over an agreed upon timeframe, usually 3-10 years.

How It Compares to Traditional Financing

Owner financing differs from traditional financing in a few key ways:

• Interest Rates - Owner financing typically have low or no interest rates, and require no credit check.
• Loan Amounts - Banks will finance higher amounts, while owner financing usually caps out under $1 million.
• Repayment Term - Owner financing tends to have faster repayment terms of under 10 years compared to 30+ years for mortgages.

Why Sellers Offer It

There are a few reasons why a land seller may offer owner financing:

• It can help net them a higher sale price. (Unless you are Land to Land Holdings. Our finance prices are comparable to our cash sale prices. We believe in fairness, honesty and making land ownership as easy and accessible as possible.)
• It allows them to sell the property faster.
• It can help them defer capital gains taxes.

Benefits for Buyers

As a buyer, some benefits of owner financing include:

• Easier qualification and approval process.
• Lower down payments, sometimes as low as 0%.
• Avoidance of most closing costs and fees.
• Faster transaction timelines.

So while owner financing comes with some tradeoffs, it can be an excellent option for financing land, especially for buyers who may not qualify for traditional bank loans.

Here is a detailed step-by-step guide on how to buy land with owner financing:

Find The Right Property

• Search MLS listings, online land sites like Land to Land Holdings, LandModo, Land Century, Landwatch, and social media groups for owner-financed land opportunities. Prioritize lots zoned for your intended use.
• Drive/walk the land to evaluate it in-person. Assess terrain, views, access roads, utilities availability, etc.
• Verify property boundaries and absence of any liens or encumbrances via title search.

Negotiate Favorable Terms

• Offer 10-20% below asking price based on comparables and property condition.
• Request longest repayment term possible (e.g. 20-30 years) to lower payments.
• Negotiate the lowest interest rate the seller will accept. 8-10% rates are common.
• Minimize down payment if you can. 10-25% is typical for owner financing.

Conduct Due Diligence

• Hire an attorney to review the purchase contract before signing. Verify all terms suit your needs.
• Order an inspection to uncover any issues like drainage problems.
• Confirm you can afford monthly payments in your budget. Include taxes and insurance too.

Finalize the Purchase

• Final walkthrough of property before closing. Ensure all is as originally seen.
• Transfer down payment funds and sign deed paperwork to complete purchase.
• Record deed at county clerk’s office to formalize transfer of ownership.

Make Payments & Plan Exit

• Submit scheduled monthly payments to seller to avoid default. Track payment receipts.
• Refinance with bank whenever possible to exit owner financing deal. May yield better rates.

Advantages of Owner Financed Land Purchases

Owner financing can offer several key benefits for land buyers compared to traditional bank loans:

• Greater Accessibility: Buyers who may not qualify for bank financing can still purchase land this way. Approval is generally easier with fewer credit barriers.

• Increased Flexibility: Owner financing allows room to negotiate personalized terms like down payments under 10%, longer repayment periods, and fixed interest rates.
• Investment Opportunities: Lower upfront costs enable buyers to purchase multiple land parcels and benefit from potential appreciation over time as markets rise.
• Faster Timeline: Much less paperwork and underwriting. Some deals complete in days versus months with mortgages.

How to Identify The Right Property

When evaluating land parcels for owner financing, keep these tips in mind:

• Research zoning and ensure land can be used as intended (i.e. residential, commercial).
• Assess access to utilities like electric, water and sewer lines. Being on-site saves major development costs.
• Consider terrain carefully. Large grade changes may necessitate excessive grading or prevent building altogether.
• Driveways and roads should follow paths that minimize land disturbance and costly maneuvering.

Situating owner financed land wisely from the start enables buyers to maximize usable space and functionality for their future plans and goals.

Still have questions about financing your own piece of land? Check out the resources on our website, give us a call or shoot us an email and we are more than happy to help!