Can you get a mortgage on land?
Most people know about a property mortgage as a loan you can use to pay for your home. But, what happens if you want to build your home from scratch? Owning a patch of land may be a better option for the homeowners who wish to build their dream home. In this regard, the critical question is can you get a mortgage for land?
Before we answer this question, there are several things you need to consider. First, if you plan to purchase land to build your house, it is a long-term commitment. Also, a home development project can take a long time and become stressful. But, if you are willing to be patient and work together with your contractor, you can achieve a successful result.
What you need to know about getting a mortgage on land
If you’ve always wanted to have a piece of land where your kids can grow up, you will be glad to hear it is possible to get a mortgage for purchasing a pocket of land. Although, this loan is different compared to a residential one. If you ask a financial advisor, they will probably tell you it is difficult to get this type of loan. But, don’t worry, it is possible to get one if you find the right lender.
The good news is that the basic concepts for this loan are the same as other loans. That means you will need to show the lender that you are not a risky investment. The best way to do this is by having a comprehensive plan including, your vision that can be shared with the lender.
There are different types of mortgages for land, the same as a residential mortgage. Let’s take a look at some of them.
Types of land mortgage
Even though most people get a land mortgage to build a residential home, some owners may use their land for something different. Your plan, permissions, and the kind of land you want will determine the loan approval.
Residential Plot Mortgage
Most potential owners want to purchase land to build a home. It is called a self-build mortgage. That means the lenders will only approve it if you have a coherent plan for your house. You don’t need to have everything figured out right away, but they will at least expect some blueprints to understand your vision for the land.
Since you can’t build a property in one go, you will have to develop it in phases. That’s why you will also get the mortgage in stages. In the beginning, you will pay for the land, then the materials, and finally the labour.
The best part about getting a residential mortgage is that it will be easy to find lenders. Plus, the interest rate can be affordable depending on what you decide to do. Right now, you might be thinking, ‘can you get a mortgage on land for other purposes?’. The answer is yes.
If you are an entrepreneur, are you wondering if you can get a land mortgage for agricultural activities? Yes, you can, but it will be slightly difficult to find a lender. Further, the interest rates will be high.
When people get land for agricultural activities, some use it to grow their food and others for their animals. To increase your approval chances, you have the option to build your residential home in one part and use the other for agricultural purposes.
Having this loan approved will ultimately depend on the plan you have in mind including, the relevant permissions.
Usually, when people ask about a land mortgage, they may be thinking about building a home or starting their farm. But, if you are a big corporation, you might want to purchase a parcel of land for special development. For instance, it could be the ideal place for a new condo building or an area for residential homes or a perfect place for a supermarket.
When companies plan to purchase a patch of land, they need a coherent business plan to present to the lender. Today, several corporations within the real estate industry need this type of mortgage for their projects. That’s why many lenders are willing to work with them.
You can also can get this mortgage for a brownfield or a greenbelt land. But, these loans are rare, and only some lenders offer them.
Requirements to get a land mortgage
1. Interest rates
A land mortgage will have higher interest rates compared to a residential one. But, if you present an excellent application, lenders may be willing to negotiate. To make this work, you should also have a great credit score and an asset to use as a backup.
2. Credit history
A critical requirement to get any loan is to have a good score. For a land mortgage, you should also have a stable income and no missed payments on any of your debts.
3. Business strategy
If buying a piece of land is a part of a larger investment plan, you should present the lender with documentation outlining your strategy. It may increase your chance of getting a low interest rate.
4. Deposit and planning permission
Since this is a high-risk mortgage, the lender may ask you to put down a certain portion of land value as a deposit. Further, before applying for the loan, you will have to get planning permissions.