A Land Loan tends to be one of the first types of building construction loans that can be required for a development or construction project.

This can be a bare land loan or land loans for semi developed properties that perhaps already have services and road access in place. If these services still need to be put in place, a separate site development loan may also need to be acquired for the project

Because the loan is real estate based and will be secured by a land mortgage, there are more likely to be options available for financing.

Like most anything else associated with land, the key to securing land financing is all about location.

A property that is located within a developed or semi developed area is going to be more appealing to a mortgage lender than one in the middle of nowhere with nothing going on around it.

There can be quite a range in terms of what amount of financing you can get on any given property, but in most cases, the lender’s interest will fall between 40% and 60% of the fair market value.

One of the potential benefits of trying to acquire a land loan is that your may have a full complement of mortgage lending choices right from bank and institutional lenders to private mortgage lenders.

Banks are going to be more focused on the cash flow generated by the applicant and their credit standing while private lenders are going to focus more on the fair value of the property and how difficult it may be to market in the event of a loan default.

Even if you can qualify for a bank land loan, you may still opt for a private mortgage as the requirements for financing and the length of time required to complete the application process can be substantially less than through a conventional lender. This can be a big issue when you’ve got an accepted offer to purchase, subject to financing and time is running out on the financing condition.

Higher loan to values are potentially possible, provide the property is pretty much at the construction stage or is in a highly active construction area.

In order to best determine what land loan options are available to you for any given piece of property, I recommend that you work with an experienced mortgage broker who has access to both private and bank land financing sources as well as a track record of successful placement.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

The post Land Loan first appeared on Ontario Construction Loans And Mortgage Financing.

“How to Secure Bare Land Loans against undeveloped property”

If you’re trying to get a land development project either off the ground or refinanced, then you may be looking to acquire a bare land loan against the subject property.

From a construction financing point of view, bare land will be looked upon by the lender in terms of its current market value and its current use classification.

For instance, if you’re looking to purchase a tract of agricultural land for development, if at the time of purchase the land is zoned for agricultural use, then the market value will be established from area sales of similar property. Because the land is zoned agricultural, the loan to value provided by a lender is likely going to be around 50% of the market value or purchase price, whichever is lower. If the land is sitting right up against developed property and development potential is easily established by the lender, the loan to value may increase.

As the builder or developer goes through the process of rezoning the land for residential or commercial use, the value of the land will go up to reflect the change in future potential use. If the market for the change in use is viewed to be strong, the loan to value is also likely going to increase.

For property that is already purchased for development that needs to be refinanced, one of the key things that mortgage lenders will look at is if the initial purchase was an arms length transaction to establish value versus the owner of the property buying it through a related company or separate entity. An arms length transaction will better reflect the market than a purchase within arms length.

Once value and marketability is determined on the subject property, the next step for the lender is to get comfortable with the exit strategy to repay the builder/developer mortgage at the end of the proposed term. A well thought out and supported exit strategy will go a long way to securing the financing you’re looking for as most property lenders are less interested in having to take back security on bare land in the event of default versus developed land.

While institutional lenders can provide bare land loans, over 90% of these types of property mortgages are provided by private lenders who are more prepared to finance on the equity in the property, provided that a solid exit strategy for mortgage repayment exists.

Click Here To Speak With Mortgage Broker Joe Walsh

The post Bare Land Loans For Builders and Developers first appeared on Ontario Construction Loans And Mortgage Financing.