How to Borrow From Equity in Land
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 question. As with any loan application, the amount of the equity loan you qualify for and the terms and interest rate you're offered depend heavily on your credit history and your debt-to-income ratio.
Get Your Land Appraised
Land prices often fluctuate more than improved properties, such as houses, and it therefore can be more difficult to value land and apply for a loan. Get an independent appraisal so you have an idea of the market value of your land. Improvements, such as utilities, paving or grading, can add to the value of the property. While a financial institution will appraise the land on its own, having it done in advance lets you know where you stand before the loan application process begins.
Check Your Credit
Request a copy of your credit reports to ensure there are no inaccuracies or false information. You can request a free copy of your reports as compiled by the three major reporting agencies -- Equifax, Experian and TransUnion -- on the website AnnualCreditReport.com. If there are errors on your report, take steps to have them removed. The better your credit rating, the better your loan terms are likely to be.
Shop for Lenders
Every financial institution has its own loan qualifying criteria, and some banks specialize in equity loans, including land equity loans. Check with your local Better Business Bureau or chamber of commerce to help you identify area lenders that would be appropriate, or go to a financial institution with which you have an established relationship. Once you make a determination about which lender has the best rates and offers the type of services you're looking for, call to make an appointment with a loan officer to discuss your equity loan prospects.
Complete Your Loan Application
When you fill out your land equity loan application, you’ll likely be asked for information about your personal finances, including debt and income, as documented by account statements, income tax returns and paycheck stubs. Expect to a higher interest rate for a land equity loan than you what you would get with a home equity loan, simply because lenders view undeveloped property as more challenging to sell, making it more difficult to recoup their money in the event you default on your loan.
Lisa McQuerrey has been an award-winning writer and author for more than 25 years. She specializes in business, finance, workplace/career and education. Publications she’s written for include Southwest Exchange and InBusiness Las Vegas.