Buying land is a smart investment, but financing it requires a different strategy than a typical home purchase. Banks often consider vacant land a higher risk, which is why so many investors ask, “Can you get a mortgage for land?”. While traditional lenders may be hesitant, a clear path to approval exists. Keep reading to learn how to secure the financing you need.
Why Is Financing Vacant Land So Different from a Regular Mortgage?
When you ask a big bank for a loan to buy land, they often get nervous. They see vacant land as a higher risk than a property that already has a house on it.
Here are a few reasons why:
- No Building as Collateral: With a normal mortgage, the house itself is the security for the loan. If a borrower stops paying on a piece of land, it’s much harder for the bank to sell an empty lot to get its money back.
- Market Volatility: The value of empty land can go up and down more than the value of a property with a home on it.
- Borrower Intent: Banks worry that a borrower’s plans to build a house might fall through. This could leave them with an undeveloped piece of land that is hard to sell. This risk model is why many people look for private lending, which creates great opportunities for our investors.
Types of Land a Lender Will Consider
Not all land is the same in the eyes of a lender. The type of land you want to buy will have a big impact on how easy it is to get a loan.
Raw Land
This is land that is completely undeveloped. It has no access to roads, and no utilities like water, sewer, or electricity. Getting raw land financing is the most difficult because it is seen as the highest risk.
Unserviced Land
This type of land is one step up. It usually has road access, but it doesn’t have any utilities connected to it yet. It’s less risky than raw land, but it can still be a challenge to get financing from a big bank.
Serviced Land
This is the easiest type of land to finance. It has full access to roads and is already connected to utilities. This land is often ready for construction, which makes it the most attractive option for lenders.
Getting a Land Mortgage with a Private Lender
When big banks are hesitant to provide a land loan, private lenders offer a better solution. Here’s why we are often the best option for land financing:
This flexible, property-focused approach is the core of how a private mortgage works to your advantage.
Land Loan Requirements
We believe in being open and honest about what we look for. Our requirements are simple and based on common sense.
Our Common-Sense Checklist
- A Significant Down Payment: For a land loan, the down payment is usually larger than for a regular mortgage. Most lenders will ask for something between 30% and 50% down.
- A Clear Plan: You will need to show the lender what you plan to do with the land. This could be building a home, holding it as an investment, or another clear purpose.
- A Property Appraisal: A professional appraiser will need to determine the land’s current market value.
- A Good Exit Strategy: You need to show how you plan to pay back the loan. This could be through a construction loan that pays off the land loan, or by eventually selling the property.
Land Loan vs. Construction Mortgage: What’s the Difference?
It’s easy to confuse a land loan with a construction mortgage, but they serve very different purposes. Here’s a simple breakdown:
For those who don’t fit the big bank’s strict criteria for either, a B-lender mortgage can be another great alternative.
Conclusion
So, can you get a mortgage for land? Yes, you can, but your best and fastest path is often with a specialized private lender. While big banks see risk, an experienced lender like Seven Lending sees the opportunity in your vision. We focus on your property’s value to give you a fast and flexible financing solution.
If you’ve found the perfect piece of land, don’t let the fear of a difficult financing process stop you. We are here to provide the clear, common-sense approval you need to make your dream a reality.
About the Author:
Raghav Manchanda, Co-Founder of Seven Lending, is an expert in British Columbia’s private financing market. He specializes in asset-based lending, including land mortgages, and is dedicated to helping clients fund their real estate goals when traditional banks are unable to help.