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Land loans allow borrowers to purchase a piece of land, often with the intention of building a home there or developing it for business.

Because of the inherent risk to lenders, land loans can be challenging to find. The rate and required down payment are typically higher than those of a traditional mortgage loan, and the repayment term is often shorter.

Let’s dig into land loans and look at some alternatives.

What Is a Land Loan?

A land loan, also referred to as a “lot loan,” finances a piece of land. Borrowers may have plans to build a home or start a business on the land, but they might want to keep the plot for just fishing or hunting. Developers can also get land loans to build homes or businesses.

A land loan is different from a construction loan, which is typically a short-term loan to build or rehab a home. With a land loan, the borrower might not have immediate plans to develop the land or build the house.

A land loan can be more challenging to obtain because, unlike with traditional types of mortgage loans, there is no home to serve as collateral for the lender. Thus, lenders may have stricter requirements and higher rates attached to a land loan.

Types of Land Loans

The land loan rate and terms you get — and the down payment you’re required to make — may depend on the type of land you’re trying to buy.

Raw Land

Securing financing for raw land can be challenging. Raw land, also called unimproved land, is entirely undeveloped, meaning it lacks roads and electrical, water, and sewage systems.

To improve your chances of loan approval, it’s a good idea to have a comprehensive development plan to show lenders.

Of course raw land is generally cheaper than land that has been partially developed, but because it is virtually untouched, it is not possible to know what major issues await when you start development.

Recommended: How to Find a Contractor for Home Remodeling

Improved Land

Because improved land is developed with utilities and road access, lenders may be more willing to offer financing. But the land typically costs more than raw land.

How to Find Land Loan Lenders

Finding land loan lenders can prove to be more challenging than finding a lender for a traditional mortgage.

Potential land buyers can try these routes for securing financing:

•   Local banks and credit unions: If your personal bank doesn’t issue land loans or you’re struggling to find a big-name financial institution that offers them, you might have more luck with a local bank or credit union.

•   Online lenders: Searching online allows you to compare land loan rates from the comfort of your couch. It also means you can read reviews about the lenders before applying.

•   USDA loans for low-income borrowers: The U.S. Department of Agriculture offers Section 502 direct loans to help low- and very low-income individuals or households purchase homes or buy and prepare sites, including providing water and sewage systems, in rural areas. The rate is well under current market rates. The term is as long as 38 years. No down payment is required.

•   SBA loans: Business owners planning to use land for a business may qualify for a 504 loan through the U.S. Small Business Administration. The SBA and a lender issue loans for a combined 90% of the land purchase cost. The rate is based on market rates.

Recommended: What Is a USDA Loan?

What Are Typical Land Loan Rates and Terms?

Like any other loan, the interest rate will largely depend on your credit score. That said, land loan rates are typically higher than traditional mortgage rates, thanks to the inherent risk and only the land as collateral.

And the repayment term? A land loan from a bank often is a five-year adjustable-rate loan with a balloon payment at the end. Rarely you might find a 30-year fixed-rate loan through a financial institution in the Farm Credit System.

The Federal Deposit Insurance Corp. (FDIC) recommends loan-to-value (LTV) limits. Lenders may set down payment requirements even greater than the FDIC proposes, however.

•   For raw land, the FDIC advises a 65% LTV, meaning borrowers must put 35% down.

•   For land development, the FDIC recommends a 75% LTV, meaning borrowers must put 25% down.

•   For construction of a one- to four-family residence on improved land, the FDIC calls for an 85% LTV, meaning borrowers must put 15% down on the land loan.

If you don’t plan to develop the land, the rate and down payment could be steep.

If you do build a home on the land, you may be able to refinance the land loan into a traditional mortgage.

Alternatives to Land Loans

A land loan is not your only option when purchasing a lot. One of these alternatives to land loans may be a better choice for you:

Construction-to-Permanent Loans

If you plan to build a house in short order, this kind of loan could work. At first, you would make interest-only payments on the purchase price of the land. The loan then allows for draws until the house is done, usually 12 months from closing. The loan then converts to a permanent mortgage, sometimes with the same rate.

You may need to make a down payment of at least 20% of the total loan amount. The rate for construction loans in general is higher than a regular mortgage.

FHA, VA, and USDA single-close loans are also available to eligible borrowers.

Seller Financing

Though not as common as traditional financing, owner financing is when the current landowner acts as the lender. Also called a land contract, this type of financing does not involve a bank, credit union, or traditional lender.

While it can be beneficial for those who cannot secure a land loan, buyers have fewer consumer protections working in their favor.

Home Equity Loan or HELOC

If you have significant equity in your primary home, you may qualify for a home equity loan. Your home would serve as the collateral for the loan.

Similarly, you may be able to finance the land purchase with a home equity line of credit (HELOC) or a cash-out refinance.

How much home equity can you tap? Many lenders will let you borrow 85% of your home equity, the home’s current value minus the mortgage balance, but some allow more than that.

Personal Loan

Though personal loan rates may be higher than home equity products’ and you may need to pay off the loan in a shorter time, it might be possible to use a personal loan to finance your land purchase.

You’ll receive the funds quickly, and an unsecured personal loan requires no collateral.

What You Need to Know Before Applying for a Land Loan

Before applying for a land loan, it’s important to educate yourself about land development and to understand the details of the specific lot you’re interested in.

Survey

When buying a large plot of land, knowing the boundaries can be more challenging. Hiring a surveyor to mark the boundaries can be helpful before applying for the loan.

Recommended: Should I Lock My Mortgage Rate Today?

Utilities and Roads

Unspoiled land may be beautiful, but it can be difficult to develop. Understanding what utilities and roads are available — or how to make them available and how much it will cost to do so — is important before applying.

Zoning

When considering a land purchase, it’s a good idea to research any zoning restrictions in that area. Before purchasing land, you’ll want to know that you can actually build on it the way you envision.

Recommended: Tiny House Financing

The Takeaway

Land loans allow borrowers to purchase land to develop as they see fit. Because there is more risk involved for the lender, it can be challenging to find a land loan, and the rates and terms tend to be less favorable than those of typical mortgages.

A personal loan, cash-out refinance, home equity loan, or seller financing may also allow a land buyer to hit pay dirt.

SoFi offers fixed-rate personal loans from $5,000 to $100,000 and a cash-out refinance.

And SoFi brokers a home equity line of credit that allows qualified homeowners to access up to 95%, or $500,000, of their home’s equity.

FAQ

Is it hard to get a loan to buy land?

Getting a loan for a land purchase can be more difficult than getting a traditional mortgage. Fewer lenders offer land loans, and because there is more risk involved, they typically require a higher down payment, impose higher interest rates, and offer shorter repayment terms.

Are land loans higher interest?

Land loan rates are typically higher than traditional mortgage rates because there is no home to act as collateral for the lender. Interest rates may vary depending on credit scores and the down payment amount.

What is the first step to apply for a land loan?

First, research land loan lenders. Before applying, it’s also smart to devise a plan that shows the lender how you will develop the land, accounting for things like utilities, land boundaries, roads, and construction costs.

Photo credit: iStock/shapecharge

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOHL0922026

Navigating a small kitchen can be challenging, especially if you love to entertain or have numerous mouths to feed. If your snug cooking area needs an upgrade, you might be craving ways to create more elbow room and storage areas.

Fortunately, choosing from the buffet of small-kitchen remodel ideas can help you expand your culinary space without breaking the bank.

What Is the Average Size of a Small Kitchen?

Today, the average small kitchen is considered to be 70 square feet. Many apartments in big cities have kitchens of 50 square feet or less.

Isn’t that a shame? Not always. Unsurprisingly, millennial homebuyers, who have constituted the biggest share of buyers for years, are far less likely than baby boomers and Gen Xers to cook dinner at home.

A little kitchen might suit them fine, but they still may like the idea of zhuzhing it up.

10 Small-Kitchen Remodel Ideas on a Budget

You don’t need to demo a wall or take out a reverse mortgage to improve your cozy canteen.

At an average of $150 per square foot for both materials and labor, a homeowner might spend $10,500 for a 70-square-foot kitchen remodel. Some will spend much more, and some, much less.

Here are 10 small-kitchen remodel ideas on a budget that will work for most kitchen configurations.

1. Go for a New Backsplash

Installing a festive new backsplash can range from $10 to $95 per square foot. Stick with ceramic tile, brick, or tin for more affordable options than marble or glass.

Adding a backsplash with geometric patterns can make a small kitchen seem larger.

2. Install Open Cabinets and Shelves

Open cabinets and shelves offer a contemporary feel and a chance to display your favorite dishware. The look can also be a less expensive option than traditional cabinets while lending a sense of airiness to a once-cramped kitchen.

3. Change the Flooring

Installing a new floor can be an affordable way to revamp the look of your small kitchen. Vinyl kitchen flooring comes in a variety of snazzy colors and patterns, and costs between $1.85 and $3 per square foot, or up to $10 for high-end materials.

4. Paint With Light Colors

A fresh coat of paint can give an instant facelift to any small kitchen. But dark colors tend to absorb light and constrict the space. By choosing light colors, you can brighten and open up the room.

5. Add Style and Storage Above

Maybe you bought a starter home, and the kitchen isn’t all that.

Maybe downsizing your home seems like the thing to do, little kitchen and all.

Whatever the case, small kitchens generally need more storage space. Inexpensive stylish bins or decorative baskets on top of kitchen cabinets can help.

6. Hang a Ceiling Rack for Pots and Pans

Create vertical storage for your pots and pans with a rack hung from the ceiling. Moderately priced pot racks range from modern to rustic-chic in style.

7. Hang Your Kitchen Utensils

Carve out more room in your kitchen with a magnetic knife rack. Decorate a wall with your most-used wooden spoons and cutting boards.

8. Use the Space Under Your Cabinets

To free up more counter and cabinet space, install a paper towel holder or a wine rack underneath the upper kitchen cabinets. You could also add an extra shelf for spices or coffee mugs.

9. Opt for a Single Sink

If you have a small kitchen, you probably don’t want a sink eating up a big chunk of your counter space. Single butler sinks can provide plenty of depth for dishwashing and come in a variety of prices for the budget-conscious.

10. Choose Compact Appliances

Compact dishwashers are ideal for small kitchens and can cost less than standard size options. And if you are a one- to two-person household, a slimline refrigerator can be a great space saver; they come in fun colors and retro styles.

10 Small U-Shaped Kitchen Remodel Ideas

A U-shaped kitchen, also called C-shaped or horseshoe-shaped kitchen, can provide a great layout for small kitchen spaces, giving one or more chefs more room to maneuver.

Its open configuration offers functionality, but you can lose some storage and counter space.

Here are 10 small U-shaped kitchen remodel ideas to give you a little more whisking room.

1. Implement a Triangle Workflow

To maximize the layout in your small U-shaped kitchen, a triangle workflow plan can allow for the right amount of spacing between your sink, stove, and refrigerator.

Configure your three major “work” areas at adjacent countertops, ideally placing the fridge and the stove across from each other on the peninsulas, with the sink in the connecting, middle counter.

2. Create a Breakfast Bar

Try turning one of the lengths of your U-shaped kitchen into a breakfast bar/seating area. It only needs to be wide enough to hold a cup of morning joe and a cereal bowl, and deep enough to slide in some stools underneath.

3. Install a Window Over the Sink

A window over the kitchen sink is a fantastic way to bring the great outdoors into your U-shaped kitchen. The extra light provides breath to the space and a view while washing the dishes.

4. Get Depth With Contrasting Colors

While dark paint colors aren’t typically the best choice for a small U-shaped kitchen, there are ways to create space by using slightly darker shades.

For example, if you have white cabinets, painting the surrounding walls and backsplash area a light gray can give the illusion of depth.

5. Consider a Darker Countertop

If you have light-colored cabinets, the contrast of a rich brown or black marble countertop can trick the eye into seeing more depth.

6. Install Recessed Lighting

Hanging light fixtures can break up the flow in a small U-shaped kitchen, but recessed lighting can give a chic, streamlined look while increasing the amount of light in the room.

7. Make a Statement With a Black & White Contrast

White cabinets against black countertops and flooring can make a striking design statement while adding dimension. If you choose a reflective black paint or vinyl for the floor, it will give off an illuminating effect when the light hits it.

8. Designate a Wall of Cabinets

You can stretch the space and amount of storage by dedicating an entire wall to cabinets. You’ll lose some counter space but reduce clutter. Try extending the cabinets to the ceiling for an elongated effect.

9. Choose Glass for Your Cabinets

Glass panes on your kitchen cabinets can reflect light, creating the illusion of more space. Their transparency will make it easy for you and your guests to find cookware and wine glasses.

10. Ditch the Cabinet Hardware

If you are replacing your cabinets, consider a style with no handles or knobs. Doing so could offer a sleek, modern look that won’t cramp the design flow.

Ways to Finance a Small-Kitchen Remodel

If you don’t have the cash to pay for your renovations, there are several financing options to help you get that new kitchen sink without draining your savings.

Home Improvement Loan

A personal loan for home improvements allows you to receive a lump sum, often the same day, with no collateral required. You’ll repay the money, plus interest, in monthly installments.

An unsecured loan may come with a fairly high interest rate.

HELOC

If you have enough home equity, you may be eligible for a home equity line of credit (HELOC) by using your home as collateral. The rate will typically be lower than that of a personal loan or credit card. Plus, you’ll only make payments on the amount borrowed.

But HELOCs may come with closing costs, fees, and a minimum-withdrawal requirement. Most have a variable rate, which could eventually go up. Your home could be at risk if you default on a HELOC.

Still, when rates rise, so does the popularity of HELOCs.

Cash-Out Refinance

With a cash-out refinance, you can use the equity in your home to help redo your small kitchen. You would refinance your mortgage for more than you owe and use part of the difference to cover the project costs.

The downsides of a cash-out refinance? Your overall debt on your house will increase, and closing costs will typically be 2% to 5% of the loan amount.

Credit Card

If you have a 0% or low-rate credit card and can pay off the debt quickly, it could be a smart way to pay for a kitchen remodel while earning some travel miles. But a high-interest card could result in hefty monthly payments, and missing even one payment damages credit scores.

Recommended: Buying? Learn the Different Types of Mortgage Loans

The Takeaway

A small-kitchen remodel can increase the value of your home and raise your joy factor. You can put your little-kitchen project on the front burner with a range of financing options.

SoFi offers a fixed-rate personal loan with no fees as well as a cash-out refinance.

With a HELOC brokered by SoFi, you can access up to 95%, or $500,000, of your home equity to put toward your small-kitchen remodel and other home improvements.

FAQ

What is the average cost of remodeling a small kitchen?

The average cost of a small-kitchen remodel is $10,500, given an industry average of $150 per square foot for materials and labor and an average small-kitchen size of 70 square feet.

Can you remodel a small kitchen for $5,000?

A do-it-yourselfer can remodel a small kitchen for as little as $5,000 by painting the walls and existing cabinets, installing new hardware (or none at all), laying vinyl flooring, and buying white or black appliances instead of stainless.

What is the best layout for a small kitchen?

U-shaped kitchens are popular because they maximize cabinet and surface areas. If an island won’t fit, try a peninsular breakfast bar connected to the wall. In a narrow kitchen, aim for a double galley.

Can you update an old small kitchen?

Of course you can. Plan it, budget for it, and add about 20% for emergencies.

Photo credit: iStock/martin-dm

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOHL1122008

Taking out a home mortgage can be one of the biggest financial decisions you make. While some people can, it’s uncommon to pay for a house entirely with cash. Most people put some money as a down payment and then take out a mortgage for the rest of their home’s purchase price. But before you sign on the dotted line, you’ll want to make sure you understand how a mortgage affects your credit score.

The good news is that, as long as you regularly make your mortgage payment on time, having a mortgage can help your credit score. You may see a slight negative impact to your credit when you first apply for a mortgage, since the lender will likely pull your credit report. But after that, your mortgage will generally have a positive impact on your credit score, assuming you’re consistently making on-time payments.

Recommended: When Are Credit Card Payments Due?

Does Having a Mortgage Help Credit Score?

One of the mortgage basics is that in exchange for an upfront payment (generally used to purchase a home), you’ll make regular monthly payments to your lender for a specified period of time (often 30 years). Having a mortgage on your credit report can help your credit score in two ways. First of all, making your mortgage payments on time each month helps show a positive payment history. Another way that having a mortgage can help your credit is by diversifying your credit mix, which is another factor that makes up your credit score.

How Mortgage Application Impacts Credit Score

The process of applying for a mortgage can impact your credit score in a variety of different ways. Here’s a closer look.

Situations Where It May Hurt Your Credit

When you apply for a mortgage, your lender will usually do a hard pull on your credit report to assess your overall creditworthiness. The number of recent inquiries on your credit report is a negative contributing factor to your credit score, so you’ll want to limit the number you make within a certain window of time. One way to do this is to wait to apply for a mortgage until you are sure you have a sufficient credit score needed to buy a house.

Recommended: What is the Average Credit Card Limit?

Situations Where It May Help Your Credit

It can be smart when applying for a mortgage to work with different lenders to find the right lender for your situation. One piece of good news is that multiple mortgage-related inquiries in a short period of time usually will only count as one inquiry. So if you’re working on establishing credit, you won’t need to worry about multiple inquiries from different mortgage lenders pulling your credit report, as long as they’re all within the same window of time.

How a Mortgage Can Affect Your Credit

Beyond applying, there are a number of ways that having a mortgage can affect your credit. When you get a mortgage it can help your credit score, but it can also hurt it.

Hard Inquiry When You Apply

One of the factors that makes up your credit score is the number of recent hard inquiries you have. Any time a potential lender conducts a hard pull of your credit report, it can cause a temporary drop in your credit score by a few points. This drop usually goes away after a few months, but it’s something to be aware of.

Paying Your Mortgage On Time

One of the biggest factors that affects your credit score is your payment history. So if you have a mortgage and regularly pay it each month, that can make a positive contribution to your credit score. This is one reason it’s important to make sure that you don’t take out a mortgage that you’ll have trouble paying each month.

Late Or Missed Mortgage Payments

Because your payment history is such a big part of what makes up your credit score, late or missed mortgage payments can have a large negative impact on your score. Potential lenders look at your credit report to get an idea of how likely you are to repay your debt obligations, so having late or missed payments can be a red flag to future lenders.

Improving Your Credit Mix

A lesser-known but still important part of what makes up for your credit score is your overall credit mix. Generally, it’s considered a positive sign if you have a variety of different types of loans on your credit report. This includes credit cards, auto loans, mortgages, personal loans, etc. Adding a mortgage to a credit report that doesn’t have one helps diversify your credit mix.

Changing Your Average Age of Accounts

Another factor that makes up your credit score is your overall average age of accounts. Potential lenders like to see a lengthy history of you responsibly using the credit that’s been issued to you. So while initially a new mortgage will lower your overall average age of accounts, over time it will work in your favor.

Recommended: Tips to Qualify for a Mortgage

Tips for Building Your Credit Score After Buying a House

After you’ve bought your house, here are a few tips to continue building your credit:

•   Pay your mortgage in full and on time, each and every month.

•   Continue to pay your other debts (like credit cards and student loans) on time each month as well.

•   Keep an emergency fund to ensure you can still meet your debt obligations (including your mortgage) even when the unexpected happens.

•   Make sure you save enough money to pay your home insurance and property taxes (if your mortgage isn’t escrowed).

•   Regularly review your credit report for unexpected or inaccurate information.

•   Increase your credit utilization ratio by raising credit limits and limiting debt.

•   Limit your new credit inquiries as much as possible.

Recommended: Tips for Using a Credit Card Responsibly

The Takeaway

Having a mortgage can affect your credit score in a variety of ways, but most of them are positive. While you will likely see a small temporary drop in your credit score due to the hard pull from your mortgage lender, that should go away after a few months. Then, as long as you regularly pay your mortgage on time each month, you should hopefully see a positive impact on your credit score from having a mortgage.

Another great way to build your credit can be by responsibly using a credit card. Many credit cards, like the SoFi Credit Card, also offer cashback rewards for everyday usage. If you’re approved for the SoFi Credit Card, you can earn unlimited cash-back rewards. You can use those rewards as a statement credit, invest them in fractional shares, or put them toward other financial goals you might have, like paying down eligible SoFi debt.

FAQ

How long does it take for your credit score to go up after buying a house?

When you get a mortgage (or any type of loan), the potential lender will likely do a hard pull of your credit report. Because the number of recent inquiries you have is a factor that makes up your credit score, this hard pull may temporarily drop your credit score. The good news is that it usually only drops by a couple of points, and even that small effect usually goes away after a couple of months.

How long should I wait after closing to make another big purchase?

You want to be careful about making large purchases or applying for any other credit before you are approved for a loan. This is because your lender and underwriter will be digging into your credit report in detail to make sure your overall financial situation is sound, and they’ll want to know about anything out of the ordinary. After you close on your mortgage, you don’t need to be as careful about making another big purchase, as long as it fits into your overall financial picture.

What credit score is needed to get a mortgage?

There isn’t a specific credit score that’s needed to get a mortgage. Instead, each lender will have its own criteria for approving mortgages. Your overall credit score, your total down payment, and the house itself will all play a role in whether you’re approved, and at what interest rate.

Photo credit: iStock/sturti

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


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Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

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