What types of government loans can be used to purchase land?


Quick Answer

The United States Department of Agriculture (USDA) offers Section 502 direct loans that can be used for the purchase of land located in designated Rural Development, or RD, areas. The USDA also makes direct and guaranteed land purchase loans available to farmers through the Farm Service Agency (FSA).

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Full Answer

The USDA Section 502 loans were designed to assist people with incomes levels between low and moderate to build, purchase or repair homes in rural development areas. For people who are seeking to build a home and need to purchase the land to do so, this type of loan can enable buyers to purchase the required land, provided that the income and credit requirements are met. The USDA Section 502 provisions can also help borrowers to obtain a guaranteed, or USDA-backed, loan from a third-party lender and, in some cases, grants may also be available, as noted by RealEstate.com. Section 502 loans can also be set-up with no down payment required.

Obtaining a loan, with government assistance or otherwise, can be a relatively difficult taskfor those buyers seeking to purchase land with no intent of improving the land by building on it. In this case, borrowers should be prepared for the lending institution to view this type of a loan as a high-risk proposition, as advised by Bankrate. The borrower might walk away from the unimproved land, and the lending institution is then left with a raw parcel of land with no dwelling or improvements to assist in recouping its loss through a public auction. As a result of the risk, loans for raw land with no intent for improvement may carry higher interest rates and require larger down payments.

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