Loan for purchasing land and building a house, 2026.
Can you take out a loan to buy land to build a house? This is a question many people ask who dream of owning their own house or building a detached house on their own land because they don't want to live in a housing development, but are held back by not owning suitable land for construction.
Can you get a loan to buy land to build a house?
The answer is "yes," but the process and approval are more complex and rigorous than buying a house in a housing development project. This includes the loan amount and interest rate. Banks will still offer it as a house loan, but it will be classified as a "loan to buy vacant land to build a house."
Let's look at what you'll need in addition to the usual identity and income verification documents required for a house loan, such as a copy of your ID card, salary slips, and bank statements for the past 6 months. If you want to borrow money to buy land to build a house, the bank will require the following documents from the borrower:
1. Copy of the land purchase agreement and proof of down payment (if any).
2. Copy of the land title deed and a brief map of the land location (if any).
3. Copy of the construction contract.
4. House plans, along with a list of materials and estimated contractor costs.
5. Building permit.
This means that when you want to take out a loan to buy a house to build yourself, you will need to have these documents and proofs. You should have a certain amount of savings ready because when buying land, the seller will usually require a deposit upfront, and possibly a down payment as well. This is how you obtain the land purchase agreement, which you then submit to the bank for a loan.
Regarding the land title, the bank will appraise the land. The loan amount will depend on their assessment. Generally, the land must have complete access to utilities such as electricity and water, and not be landlocked; otherwise, the bank will not approve the loan.
The next steps involve building a house: a construction contract, house plans with a materials list and construction costs, and a building permit. After obtaining the land purchase agreement, the next step is to hire a contractor to design the house and obtain the building permit.
This also requires some savings for these expenses. You should also study relevant laws before building.
Finally, carefully review the loan terms and conditions of the bank you wish to borrow from, as some banks specify that they must hire a reputable contractor registered with a housebuilder association.
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How much will the bank lend?
Once you have gathered all the necessary documents and evidence, you can submit them to the bank for a loan. Several financial institutions are available for loans to purchase land and build a house, including Krung Thai Bank, Krungsri Bank, Kasikorn Bank, and the Government Housing Bank (GHB).
Generally, banks will lend up to 90% of the appraised value of the land plus construction costs. For example, if the appraised land is 5 million baht and the construction cost is 3 million baht, totaling 8 million baht, the maximum loan amount would be 7.2 million baht.
However, the approved loan amount depends on several factors, including the borrower's ability to repay the debt. Banks typically set a Debt Service Ratio (DSR) of 30-40%, meaning the borrower can handle debt burdens no more than 30-40% of their monthly income.
For example, 30% of a monthly income of 50,000 baht equals a debt burden of 15,000 baht per month. The approved loan amount will then be limited to the borrower's ability to repay.
Another factor is the land valuation. When purchasing land, the bank will assess the value of the land against the bank's risk assessment. Sometimes, banks will separate the valuation of the land and construction costs. “Land Loan Amount” vs. “house Construction Loan Amount”
Land is considered an asset that is difficult to sell at auction if it becomes a bad debt. Therefore, the loan amount may only be 50-80% of the land's appraised value. In contrast, construction loan amounts are typically 80-100% of the construction cost.
Using the same example, if the land is appraised at 5 million baht, and the bank approves only 50% of the appraised value, while the construction cost is 3 million baht and the bank approves 100%,
this means the total loan amount received is only 5.5 million baht out of a total cost of 8 million baht, or approximately 70% of the total cost. Therefore, you will need another 2.5 million baht in cash to pay for the remaining balance of the land.
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Will the interest rate be the same as buying a house in a housing development?
Each bank has different interest rate structures. For example, Krungsri Bank offers a house construction loan with a maximum loan amount of 100% of the construction cost for loans of 3 million baht or more. The loan amount is based on the necessary amount and repayment ability, with a reducing balance interest rate throughout the loan term. 4.432%-4.875% per year
For new or resale houses, Krungsri house Loan offers a maximum loan amount of 110% of the appraised value for new houses or 90% for resale houses. Borrow only what you need and can afford to repay. The interest rate is calculated on a reducing balance basis throughout the loan term, ranging from 4.194%-5.800% per year.
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In summary, borrowing to purchase land for house construction involves complex land purchase contracts and house design arrangements. Banks' loan and interest rate assessments are also more stringent. Therefore, those dreaming of buying land and building a house need to save a considerable amount of cash before applying for a loan and have a stable income.
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Thank you for the valuable information from DD Property.
