How to Borrow Money Using Land as Security

Land is usually considered a stable and good investment because most land increases in value over time. However, it can be hard to get a loan on land you own. It depends on how much land you own, the location, what utilities or improvements are on the property, and it's current and potential uses. A single lot inside a city and 20 acres of prime development land in a suburb will have different loan values. Why you want the loan also will be a factor. It will be easier to get a loan to improve land.

Have your land surveyed and appraised, so you can show a potential lender exactly how much land there is and where it is located. Get the current value for real estate taxes, but also have a professional appraiser assess the land. Assemble all documentation on the property, proof of your ownership, it's history and relation to adjoining property, such as a business park or residential subdivision.

Apply to your current financial institution, such as one holding a mortgage or loan on your home or business, and ask about loan potential. Ask for a reasonable loan; many institutions limit the amount of a loan on unimproved land, perhaps to 35 percent or less of its appraised value. Be specific about why you want the loan, for improving the property, subdividing it for development or preparing it for business use, for instance.

Shop around. Lending institutions have different rules and another lender may be more willing to make a loan than your current one. Keep the loan term at no more than 10 or 15 years, and compare interest rates and terms. Look for institutions that feature land loans, especially for rural land or urban development property. Be prepared for high interest rates on raw land with limited immediate development potential.

Items you will need

  • Survey
  • Appraisal
  • Ownership documentation and history

About the Author

Bob Haring has been a news writer and editor for more than 50 years, mostly with the Associated Press and then as executive editor of the Tulsa, Okla. "World." Since retiring he has written freelance stories and a weekly computer security column. Haring holds a Bachelor of Journalism from the University of Missouri.