Buying land vs Buying land with improvements (loan question)

Factual Questions
1

I’m looking at a plot of land in Arkansas. I was originally looking for raw land that I could improve and or this I was expecting to buy it on a land contract. But I found a lot that is raw land with electricity, water and septic because there is a broke-ass (but might be technically habitable) on it. Would this then make it eligible for a conventional mortgage?

Also, would it be necessary or advisable to get the loan through an Arkansas bank rather than my credit union?

2

FROM: ChatGPT

:house_with_garden: 1. Would this property qualify for a conventional mortgage?

Possibly — yes, if the existing structure meets minimum “habitable dwelling” standards.

A conventional mortgage (Fannie Mae / Freddie Mac–backed) requires:

  • A permanent foundation (not a trailer, RV, or mobile home without a permanent foundation).

  • The structure must be habitable — meaning it has:

    • Functioning kitchen and bathroom

    • Safe electrical, plumbing, and heating systems

    • Roof, walls, and floors intact

    • Meets local building codes (or can be brought up to them easily)

  • The utilities (electricity, water, septic) must be connected and operable.

  • The property must be insurable and appraise sufficiently to cover the loan amount.

:backhand_index_pointing_right: So: if the house, however rough, is technically livable and insurable, it can make the parcel eligible for a conventional mortgage.
If the home is deemed uninhabitable (for example, unsafe wiring, collapsed roof, or no heat), most lenders will classify it as “land” — which typically means:

  • Land loan (higher rates, shorter terms, 20–50% down), or

  • Construction loan (if you plan to tear down/rebuild).

Sometimes an as-is conventional loan or rehab loan (Fannie Mae Homestyle or FHA 203k) can bridge that gap if you plan improvements.

:bank: 2. Local Arkansas bank vs. your out-of-state credit union

Here’s the general tradeoff:

Option Pros Cons
Local Arkansas bank or credit union - Familiar with rural parcels and mixed-use or “nonstandard” properties
  • May send their own appraiser who understands the area
  • Can underwrite “portfolio” loans (keep it in-house rather than selling to Fannie/Freddie) | - May require higher down payment (20–25%)
  • Slightly higher rates |
    | Your current credit union (out of state) | - Familiar relationship, potentially better rates and terms | - Often won’t finance land or unconventional properties out-of-state
  • May not lend outside their service area or to collateral in another state
  • Appraisal and title logistics more complicated |

Bottom line:
If the house is borderline (questionable habitability), a local Arkansas lender will likely give you a fairer shake and better understanding of local comps and conditions.
If it’s clearly habitable and appraises fine, your credit union could work if they do out-of-state loans.

:white_check_mark: Recommended next steps:

  1. Ask the listing agent for the property type classification in the MLS: “Residential,” “Land,” or “Residential with improvements.”
    That gives your lender a clue.

  2. Have a local loan officer (bank or credit union) look at photos and the tax record — they’ll tell you in 5 minutes whether it’s mortgageable.

  3. Get a prequalification both from your own credit union and an Arkansas lender; compare rates and down payment requirements.

  4. Verify zoning and utilities are fully functional and permitted.