It is no surprise that there are many advantages to buying land as compared to buying a property. But one thing- the biggest hurdle- that comes in the way of investing in land is your credit score.
Credit score determines how a person is capable of managing his debts and finances. This is an important factor that lenders check before sanctioning your loan.
For a comprehensive knowledge on what is credit score and the benefits of good credit score for land contract, read this blog till the end.
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What is a Good Credit Score for a Land Contract?
To understand the benefits of a good credit score for land contracts, you must have a clear idea of what a credit score is.
A credit score is a three-digit number that indicates how well you can handle your debts and personal financing. It helps you keep track of your credit card transactions and loan repayments.
For instance, for every purchase that you make using credit cards, or for any type of loan you borrow your score fall. However, with every EMI repayments of the ongoing loans, the credit score will increase.
Thus, credit scores play an important factor to help borrowers determine how likely you will be able to repay a new debt. Your credit report will reflect the score after every debt and its repayment. The credit scores in USA typically range from 300 to 720. If you have a score between 690 to 720, you have maintained an excellent credit record and lenders can trust you for any new loan. However, if the credit score from 300 to 629, lenders will consider them poor.
People with higher credit scores will have easier access to better financing when it comes to land investment. Factors such as timely repayments, credit utilization and credit availability play a huge role in impacting credit scores to buy land.
As such, it acts as a face to your financial history, which lenders use to assess whether to lend you a land contract or not. This implies, lenders will consider offering land contracts to investors with credit score more close to the upper limit of the range as compared to investors with lower credit score.
Thus, achieving a good credit score is one of the crucial things you can do before searching for land for sale in the USA. The higher your credit score, the higher the likelihood of you obtaining a land contract at a favorable interest rate.
Benefits of Good Credit Score for Land Contract
As discussed above, credit score is an important factor that you must maintain to purchase a land for sale and earn significant ROI. The points below highlight the benefits of a good credit score for a land contract:
1. Lower Interest Rates
If you have a high credit score, land seller will believe that you maintain a financial discipline and have sufficient finance to balance your ongoing debts and new ones. If you are opting for a mortgage to purchase a land contract, a higher credit score will assure the lender that you can handle the loans and will not default.
Thus, higher credit score will allow lenders to sanction mortgage loan of your desired amount at lower interest rates. However, if the lender notices your credit score is poor, they might not approve your loan request. Even if lenders approve to sanction loan to you, they will consider you as a highly risky investment and will levy comparatively higher interest rate.
Therefore, to opt for mortgage loans at lower interest rates, consider improving your credit scores before applying.
2. Lesser Down Payment
You must be aware that to avail a loan, you must pay a down payment amount from your end to the lender. This amount act as upfront payment from your end to secure the loan to avoid instances of defaulting.
Another benefit of good credit report for land contract is that, you will get better negotiating power to pay lesser down payment amount and get your loan sanctioned. However, if lenders notice that poor score on your credit report, you would need to pay a huge amount as down payment.
3. Potential for Traditional Financing Options
Another important benefit of good credit score for land contract is that with such score, you can avail pre-approved loans and low interest mortgage loans from mainstream banks easily. You will receive several options from traditional financing options with higher credit score. This will help you build equity and manage your finances with better terms in the long run.
On the other hand, mainstream lenders do not end to approve loan requests if a person has poor credit score. Such investors would need to look for alternatives like owner financing.
4. Convenient Repayment Terms
Another benefit of good credit score for land contract is that it empowers you with better repayment terms. This means, you can ask for a longer repayment period to settle your debts as small EMI amounts throughout the course. Furthermore, lenders will also not charge any fine or penalties for opting for longer repayment tenure owing to higher credit score.
5. Increased Chances of Loan Approval
As stated before, another benefit of good credit score for land contract is that it will place you on lenders good books instantly. Based on your past credit reports, lenders will believe that you have a financial discipline in timely repayments of debts. It will also show that you have enough finance to support a new loan along with your ongoing transactions. Thus, it shall prove you are a low-risk investment for them.
Keeping these in mind, lenders will tend to instantly approve your loan at lower interest rate as compared to the loan requests of someone with poor credit score.
6. Better Negotiation Power
Maintaing a good credit score places the ball on your court while applying for a loan for land investment. With a good credit score, you can have a higher negotiating power to settle on your desired amount. You can also discuss with lender and set a longer loan repayment period and lower interest rates so that you can pay the debt conveniently.
7. Better Chances of Renting a Land
Besides lenders, landlords and property management companies can also verify your credit score before renting you a land. By browsing your credit score, they would like to determine your record and power to pay the rent on time.
In such case, benefit of good credit score for land contract is that you would not have to pay higher security fees to landlord. Furthermore, the landlord would also lease the property to your for a longer period as higher credit score reduces the chances of defaulting.
5 Ways to Improve Credit Scores for Land Contract
If your credit score is not that great and needs some work, don’t worry. Luckily, you have options to improve it. With the benefits of good credit score for land contract, you must also have a detailed idea on how to improve it.
To improve your credit score to buy land, consider following the simple steps below.
Clear Bills on Time
To reap benefits of good credit score, this is the very first thing you must keep in mind.
Your past payment records are an important part of your current credit score. Your credit report includes the time and date when you missed your bills. Hence it is always necessary to pay the bills on time. Make it a habit to clear your bills on time, either on or before the due date.
Although you can’t do anything about your past late payments, you can make consistent timely payments a part of your portfolio
Maintain Credit Balances As Low As Possible
In simple terms, credit limit is the maximum limit of your credit card utilization. While purchasing through credit card, you must be mindful to maintain a total expenditure below this limit.
Nowadays, getting a credit card has become easier; however, if your credit balance exceeds the credit limit, it can affect your credit score. Therefore, it is advisable to maintain your credit balance as low as possible.
Ideally, the credit balance should be 50% or less of your credit limit. Additionally, you should not open a new credit account unless necessary. This shall help you significantly to strategize your land buying guide while researching on your financial standing to purchase a property.
Clear Off the Debt
Excessive outstanding debts tend to lower your credit score. Therefore, to improve your credit score, pay off your existing debt. If your credit score is low and you are planning to apply for a loan in near future, consider clearing off the existing debts to enjoy the benefits of good credit score.
On this note, paying off your debts, might not immediately raise your credit score but will prevent any negative information from appearing in your credit report.
Open New Accounts Responsibly
If you have had difficulty dealing with your credit score till now, then you can work on improving your credit by opening new accounts responsibly. If you happen to open an account make sure to keep it paid within the given time limits. This shall help you maintain a financial balance so that you can reap benefits of good credit score.
While searching multiple lenders for the best land contract will not affect your credit score, applying for a credit card with multiple lenders will affect your credit score.
Patience is the Key
Another important point to keep in mind is that, you cannot improve your credit score overnight. It takes time and may take around 5-6 months to reflect improvements in your credit report.
If you are planning to buy land using a land contract, start working on the aforementioned suggestions. This shall help you enjoy benefits of good credit score for the long run. So, by the time you sign a land contract, your credit score will be high enough to get you the land contract of your interest.
Final Words
To conclude, as an informed investor, it is important that you know what is makes your credit report impressive. With discipline and better money management, you can raise your credit score to secure low-interest loans. With the above points you can maintain a healthy financial discipline and reap benefits of good credit score.
Furthermore, if you do not have accurate information about your credit score, the entire land purchase process can be troublesome. Gladly, at APXN Property, our experienced real estate experts can help you with the right guidance on land purchase. Contact us online to make the most of your land purchase or call 702.710.4466 to speak to our experts today!
