How to Borrow From Equity in Land

The type of land you own will determine how much money you can borrow.

The type of land you own will determine how much money you can borrow.

The age of the pioneer in America is all but gone. The value and significance of empty land is no longer a hot prospect, particularly from the point of view of banks, lenders and mortgage originators. However, if you have a tract of land and wish to take some cash out of the value of the property, you should be able to find a method. It is important to note that terms for a loan you take on land will likely not be nearly as favorable as a loan taken on a primary residence.

Land Loans

Home mortgage and equity lenders are very wary of taking on large loans tied only to vacant land. The reason is risk. With a home, the lender understands that the borrower relies on the home for residence and cannot easily walk away from the responsibility of paying the mortgage. With a land loan, it is much easier for a borrower to fall on tough times and simply leave the land on its own.

Vacant Land

Lenders will also determine the type of land before lending. If the land is completely vacant and wild -- like a tract in the woods -- they will likely be less inclined to lend. However, if the land is zoned for commercial or residential property has some water and sewer hook-ups and is in a desirable area, the chances of obtaining an equity loan increases dramatically.

Type of Loan

In most cases, the types of loans you will be eligible for are going to be pricey and not entirely advantageous. For example, to mitigate risk, lenders will likely only finance a small percentage of the value of your land. If your land is worth $100,000, you may find that lenders are only willing to finance 35 percent, or less, of that value, leaving you with a $35,000 loan. In addition, the points you pay and the interest rate on the loan will likely be dramatically high -- perhaps as much as 15 percent.

Hard Money

If you are pulling money out of your land because you have fallen on hard times, your options will likely be quite limited. Traditional lenders want to make sure they are making sound credit decisions on land loans particularly, so if your credit is suffering, you may need to reach out to so-called "hard money" lenders who specialize in high-risk loans. These lenders are a last resort for consumers since their rates, fees and collection methods are atypical and severe.

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