Borrowing Against Land Equity

Equity loans for improved land are likely to be more favorable but nowhere near as favorable as the terms for home equity.

Borrowing against land equity.

Home equity loans are popular among people who want to unlock the cash value of their dwellings. A home equity loan is a type of second mortgage. 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. 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.

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. Banks use the valuation figure of the land value plus the cost of construction as the total purchase value. Some lenders are willing to accept a vacant plot as security on the loan. This means that the amount you can borrow depends a lot on the land valuation.

Likewise you can borrow against the value of vacant land with a land equity loan. With a land equity construction loan your borrowing power is the main element that s at risk. Instead most land lenders cap equity loans for vacant land at 35 of the property s value. 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.

Because lenders will typically lend much less money for equity in land it is best if you do not owe any money on the property that you are looking for the equity loan on.