Borrowing Against Land Equity

Because there is no structure developed on land lenders are less likely to lend 80 or 90 of the value of the land with an equity loan or line of credit.

Borrowing against land equity. 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. 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. Banks use the valuation figure of the land value plus the cost of construction as the total purchase value.

Instead most land lenders cap equity loans for vacant land at 35 of the property s value. 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 allow you to borrow against your home s value minus the amount of any outstanding mortgages on the property. Likewise you can borrow against the value of vacant land with a land equity loan.

Some lenders are willing to accept a vacant plot as security on the loan. 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. Equity loans for improved land are likely to be more favorable but nowhere near as favorable as the terms for home equity.

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.