A lot loan is a loan for a plot of land in which the buyer may or may not be planning to build upon in the near future. Lots of land in subdivisions, planned communities, or in any other kind of area where the lots around it are similar in size, accessibility, available public utilities, and where they share other similar characteristics are usually much easier to get financing for. The reason for this is the lending institution will have an assessed value for the land that is based on something solid and reliable in the similar properties around it.
Some people may choose to purchase a lot loan purely for speculative reasons and hold the piece of land as an investment, in anticipation that building on lots around it will increase the value of the lot they have purchased. Others may choose a lot loan in anticipation of building a primary home or other residence on the lot. In this case, it is important to check the terms of your lot loan to see what is involved with converting it directly into a construction loan when the time comes to actually build upon the lot.
Lot loans are offered by banks as well as private financial institutions, however be prepared to show tax statements and other proof of income. If you are planning to invest in the lot and sell it at a later date, the bank will want to be assured that you have the money and income to continue paying the loan over time while you are waiting to sell your longer term investment. Loans for lots where you are planning to improve upon the lot by building a home or other dwelling can sometimes be easier to obtain the financing for as the bank has the assurance the collateral value of the land will be increased in some way. So in the event of the borrower defaulting, the value of that land will be able to cover or exceed the original loan amount. As with most types of loans, there are both fixed and adjustable rate lot loans. You should compare rates, fees, and terms from multiple lenders before making a decision.
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