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Can I Get a Mortgage on Land?

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Can I Get a Mortgage on Land?
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When you think of a mortgage, a loan to buy a house is probably the first thing that comes to mind. If you’re looking to buy a plot of land, you might ask, ‘can I get a mortgage?’ – and furthermore, is a mortgage an option if you want to purchase land and build your own home instead of buying an existing one?

The short answer is yes. You can get a mortgage if you’re planning to purchase land. But there’s a lot to consider, such as the different mortgages available based on how you will use the land.

This blog will answer your questions about buying land with a mortgage, possible reasons to get a mortgage on land, and some of the most essential things to keep in mind before you apply.

What is a mortgage?

A mortgage is a loan used to purchase real estate, such as a house, flat, or land. The property or land purchased with the mortgage serves as collateral for the loan. Regardless of the type of property the buyer has purchased with the mortgage; the lender is within their rights to repossess it if they do not keep up with the required repayments.

Mortgages are typically paid back over a more extended period than other loan types, often 20-30 years or longer. The payments include both principal and interest. How much a mortgage borrower will repay monthly depends on several factors, such as:

  • The size of the loan.
  • The interest rate.
  • The mortgage term.

Can I get a mortgage on land?

You will need to apply for a land mortgage to purchase land. A land mortgage is a loan designed specifically to buy or refinance a plot. Different types of land mortgages are available. How you wish to use the land you’re purchasing will dictate the type of mortgage you will need. Common options include:

  1. Self-build mortgage:

This type of land mortgage is a loan designed for borrowers purchasing land to self-build a property. A standard residential mortgage will not cover a self-build.

  • Commercial development mortgage:

Businesses or property developers will typically get a commercial development mortgage. It funds the purchase of a plot of land for construction projects.

  • Agricultural Mortgage:

You will need to apply for an agricultural mortgage if your main reason for purchasing land is to farm or produce crops.

Why would you want a mortgage on land?

There are several reasons why someone might want to get a mortgage on land:

  • Self-build homes: 

You can use a self-build mortgage to buy a plot of land on which you want to build your own home. These mortgages can cover the cost of purchasing the land and any building materials and labour required. The lender typically provides funding in stages to finance each step in the building process.

  • Development and business: 

Commercial development land mortgages are designed for individuals or companies who plan to buy land to develop it. The development could involve building new homes to rent or sell, building commercial properties, or building your business premises.

  • Farming: 

Agricultural mortgages provide funding to buy land for agriculture. For example, a borrower might get this mortgage to start a new farm or expand existing farmland.

  • Investment: 

A land mortgage can be a way for someone to invest in land to make a profit later, either by selling it or developing it and renting it out.

Things to keep in mind when getting a mortgage on land

When considering getting a mortgage to purchase land, you should consider some crucial factors. These are as follows:

  • Purpose

Determine your plans for the land. This step is essential as you must apply for a specific mortgage based on how you will use the land once you own it.

  • Planning permission

If you are getting a land mortgage for building a home or commercial development, the lender may require you to have planning permission up-front.

  • Deposit:

Securing a land mortgage typically requires a larger deposit than a residential mortgage. Be prepared to pay a deposit of around 30%.

  • Earnings and employment:

Land mortgage lenders typically conduct income and employment checks like you’d expect if getting a mortgage to finance a house purchase. These checks ensure that you can afford the mortgage payments. Always provide accurate, up-to-date information to avoid delays or rejection of your application.

  • Survey: 

Some land mortgage lenders may want to survey the land before accepting or denying your application. They do this to determine its value and how it compares to the sum you have applied to borrow.  

  • Interest rate: 

Consider the mortgage interest rate, terms, and fees or charges. Spend time shopping for the best deals and compare offers from several lenders before applying.

  • Repayment term:

Consider the length of the repayment term and how much you will be repaying each month. While a longer repayment term may equal lower monthly payments, it can also increase the cost of the mortgage overall.

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