Arizona Tribune - Can you Borrow Money with Land as Collateral?

For an unsecured loan, lenders consider the applicant's credit score, history, debt-to-income ratio and current income. On the other hand, a secured loan requires sufficient, available collateral that the lender can claim if the borrower cannot repay the loan. The most well-known types of collateral used for secured loans are homes (for mortgages or home equity loans) and vehicles (for auto loans or personal loans), but land can act as collateral too.

Land loans Vs. Land equity loans

For many loan types, like personal loans, you can't use land as collateral. Land loans and land equity loans are two specific kinds of loan that are backed by land.

Land loans

There are a few different secured loans that allow you to tap into the value of land that the applicant owns. If you intend to purchase land and want to use the land to secure the debt, you can consider a land loan, sometimes called a lot loan or a construction loan. These loans are similar to mortgages in that they allow you to leverage the value of the land you're buying to obtain the loan used to purchase it. The exact type of loan depends on whether the land you're buying is fully developed, partly developed or completely raw.

The terms of the loan, including the interest rates you might be eligible for, may depend on the type of land. Should the lender foreclose the property, raw land would be harder to resell compared to developed land. Consequently, a developed land loan may get you the best interest rates.

A land loan may also require a higher down payment or a stronger credit score than a traditional mortgage. Depending on the loan, you may also need to supply specific information on how you plan to develop the lot or break ground within a certain timeframe.

Land equity loans

On the other hand, if you're looking to use some land you already own as collateral, you might consider a land equity loan. Just like a home equity loan allows you to borrow against the value of your home, a land equity loan will enable you to use the value of your land as collateral for a loan. In this scenario, the loan you obtain can be used for a variety of purposes-commonly to build on the property or offset costs on a construction project elsewhere.

The benefit of a land equity loan is that since it's a secured loan, the interest rate offered to you may be lower than that of an unsecured personal loan. It may also offer a longer term.

The major downside is that if you do not repay the loan in accordance with the terms set by the lender, you will lose the land you have provided as collateral. Compared with another property-secured option like a home equity loan, a land equity loan may have a higher interest rate and require you to have more equity.

Another potential hurdle is that not many lenders offer land equity loans. You may have to shop around for some time before you find the right lender.

The bottom line

Land loans and land equity loans are a great way to utilize the value of the land you're buying or already have. As with any kind of secured loan, an added benefit is that borrowers may be entitled to better rates. On the flip side, losing the property is a real risk for those who default on the loan.

It's important to closely examine the loan terms, interest rates and monthly payments that are put forward by lenders and budget strategically to ensure you can keep up with repayment.

Notice: Information provided in this article is for information purposes only and does not necessarily reflect the views of [publisher] or its employees. Please be sure to consult your financial advisor about your financial circumstances and options. This site may receive compensation from advertisers for links to third-party websites.

Contact Information:
Name: Nagarameshwar J.
Email: [email protected]
Job Title: Director

SOURCE: OneMain Financial

View the original press release on ACCESS Newswire

Th.Gonzalez--AT