How To Use Land As Collateral For A Secured Loan Finance

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By: Ryan Cockerham | Reviewed by: Alicia Bodine, Ramsey Solutions Certified Financial Coach | Updated January 28, 2019

Land can be a powerful form of collateral if you need to acquire a secured loan. Depending on how much loan you need, as well as your borrowing history, you may need to use something as large as a property to get the financing you need. Fortunately, the act of registering your land as collateral can be accomplished without much hassle. Once the value of your land has been assessed by a qualified expert, you can begin the process of transforming your real estate assets into qualified collateral.

Find the right lender

Although land has historically been viewed as a qualified form of collateral, you may find that some lenders are more receptive to this idea than others. With that in mind, the first step towards using your land as collateral is to identify a series of compatible lenders, then assess and compare their loan terms. Remember that the first choice is not always the right choice when it comes to selecting your preferred lender. Always make sure you find the best possible deal, which includes important parameters like interest rates and repayment term, that suit your needs.

Identify the value of your property

If you intend to use your land as collateral, the next step is to determine precisely how much your land is worth. Given the wide variety of factors that can influence the value of your land property, it is quite possible that an appraisal is required before executing your loan. To do this, you will need to hire a professional appraiser who has been approved by the lender you have selected. Once the value of your land is finalized, your lender will be able to offer you loan terms that you can accept or decline as you see fit.

Next steps

After your appraisal is complete, your lender will likely check your property for any additional liens or debts. If so, it could directly affect the likelihood of your loan being approved. Keep in mind that the condition of your land and its current level of development will influence the loan terms that are offered to you. For example, if your property is zoned residential and there is currently a house on the premises, a larger percentage of the value of the land might be offered to you as a loan. If your land does not have a property, you will likely be offered a lower percentage of the land value.

Regardless of the particular details, it is important to remember that you have the option at any point in the process to come out of these negotiations and look for other lenders. Using your property as collateral represents a significant financial move that should only be entered into under appropriate circumstances. Make sure you are comfortable with the terms of the loan before proceeding.

Important considerations

In general, remember that interest rates using land as collateral are often quite high. In some cases, interest rates can approach 15%. This interest rate is often comparable to forms of loan that do not require collateral, such as credit cards. If another form of collateral is available to you, it might be worth exploring these options. This is an important consideration, especially in situations where you might be looking to spread your repayment over a longer period of time.


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