2nd-Mortgage

Land is required for any construction or real estate development. You might not have the money required to purchase land. In that case, you can take a land mortgage to purchase land or refinance your existing plot of land.

There are two broad categories of land mortgage: ‘own use’ and investment. ‘Own use’ land mortgage is more common and is meant for those individuals who buy land for many different purposes. It can be farmers seeking a mortgage to purchase extra pasture in order to add to a farm’s existing holding or property developers who want a loan to build plots for residential development, purchase site for development of retail outlets, warehouse units, etc. On the other hand, an investment land mortgage is used to buy land that is to be rented to a third party in order to generate income.

Your lot needs to meet certain requirements before your lender approves your loan. The lender needs to ensure that the land, for which he is giving a mortgage, does not lose its value or does not become useless for the construction of the property. The land must be standard for the zone, which means that the land should neither be a very small lot nor an excessively long extension. Also, most lenders will require that at least one or two utilities such as water pipes, gas, electricity, communications, etc. are available from the surroundings.

Most commercial lenders such as banks, savings and loan association and pension funds are not eager in giving such loans. Usually, local lenders are willing to give a land mortgage. They usually charge high interest rates and give it for a short term. Most lenders offer a mortgage of up to 70 percent of the land’s valuation, but in some cases 100 percent mortgages may be available.

Apart from local lenders, there are private equity groups who are willing to finance land mortgages. Private equity groups refer to a diverse set of private lenders who finance commercial real estate. These groups usually do not give mortgage on the basis the credit status of the borrower but are rather deal specific.

In order to get the best deal available, it is advisable to get in touch with an experienced broker who has established relationship with multiple private equity groups. A broker can decide on the best loan terms and help you get the best deal suitable for your requirements. An experienced broker can help you identify potential issues with land request and develop solutions for such issues.