Borrowing Against Land Equity

Taking an equity loan using land as collateral entails having a financial institution assess the value of your property and offer you a loan based on a percentage of the value of the property in.

Borrowing against land equity. Instead most land lenders cap equity loans for vacant land at 35 of the property s value. Home equity loans allow you to borrow against your home s value minus the amount of any outstanding mortgages on the property. 1 your first mortgage is the one you used to purchase the property but you can place additional loans against the home as well if you ve built up enough equity. Home equity loans are popular among people who want to unlock the cash value of their dwellings.

This means that the amount you can borrow depends a lot on the land valuation. Banks use the valuation figure of the land value plus the cost of construction as the total purchase value. Equity loans for improved land are likely to be more favorable but nowhere near as favorable as the terms for home equity. Interest rates on a home equity loan could be lower than rates on a land purchase loan but you re putting your home at risk.

However most lenders cap equity loans for vacant unimproved land at 35 of loan to value and double the five year home equity interest rate to 7 75 to 11 5. With a land equity construction loan your borrowing power is the main element that s at risk. A home equity loan is a type of second mortgage. Many lenders will consider up to 80 percent of your land s equity plus the cost of planned construction to put a construction loan in your bank account which often allows you to borrow up to 95 percent of the cost of construction for a new home depending on your income employment and credit history.

Likewise you can borrow against the value of vacant land with a land equity loan.