Land Equity Loans Explained
Did you know the land you own can be a powerful form of collateral if you need to acquire a loan? Land equity loans work similarly to a home equity loans, but they use your land as collateral. To put it simply, a land equity loan is when you borrow against the equity in land that you own. And, as you most likely know, land equity is the value of your land minus the balance of your land loan.
Land equity loans are more uncommon than other types of property loans and may be more available the more acreage you own.
Many lenders that offer land equity loans will have an agricultural background and can make loans on all types of land.
Although it may sound similar to a home equity loan, you typically obtain a land equity loan for property that doesn’t have permanent structures built on it. One of the benefits of a land equity loan is that it allows you to take out a loan without risking assets such as your home, car, savings or stocks. Of course, the lender can seize and sell your property if you do not meet the terms of the loan agreement.
The precise amount of land equity required for a loan varies by lender, and although land is commonly considered a qualified form of collateral, you may find that some lenders are more open than others.
First, you must ensure your paperwork is in order and the property deed is in your name. If you are unsure, you can find out through the County Recorder’s office in the county where the property is located. Because land deeds are public record, anyone can obtain this information.
Find Your Lender
Once you’ve secured the correct paperwork, your next step is to find the right land equity loan lender, such as United Bank, a full-service financial institution with branches in Alabama and Florida.
Rachel Holland, SVP-ag loan officer with United Bank, said United Bank customers who have equity in land to use as collateral can apply for agricultural farmland, timberland and pastureland financing, depending on the use of the funds. The term and structure of the loan will be based on the use of funds.
“Financing from our agriculture department offers flexible terms and conditions. In addition to these benefits, our customers receive the committed and personalized service that United Bank offers in our communities. We are borrower driven; United Bank provides several effective options to help customers with their agricultural financing needs based on the borrower’s situation,” Holland said.
Determining Your Land Value
Fortunately, the act of using land as collateral for a loan can be accomplished without much hassle.
To use land as collateral, the worth of the land must be determined, and an appraisal will likely be required before a loan can be awarded. Your land’s condition and its current level of development will impact the lending terms that you are offered. There are a wide variety of factors that can influence the value of your land holdings. Land may be more valued if it is used for timber, agricultural, oil and gas, mineral rights, or recreational purposes, such as for hunting.
Once the value of your land has been determined by a qualified expert, you can start the process of transforming your property holdings into qualified collateral.
Loan Requirements and Terms
United Bank loans are qualified to finance real estate, rental property, commercial property, and construction of barns and other agricultural facilities.
“All loan requests must be for business purposes. If a potential borrower is planning to build a home on the property, we require them to go through our Residential Lending Services department to fulfill the financing request,” Holland said.
Holland pointed out that applicants must submit a completed loan application, provide a minimum of three years of tax returns, a most recent pay stub (if applicable) and an updated personal financial statement.
“The length of the loan is up to 20 years; interest can be fixed or variable depending on the loan structure or customer preference. Rates and terms are determined by customer financial strength. We are currently offering a special on agriculture land featuring a 10-year fixed rate at 5.85% and a 15-year fixed rate at 6.15%. We also offer a 30-year fixed interest rate loan option as well,” Holland explained.
“For land loans, we will lend up to 85% of the appraised value if it is a land equity loan. If it is a purchase, we will lend up to 85% of the purchase price or appraised value, whichever is less on agriculture-related real estate,” she added.
Always seek and pursue the best possible terms, which include the best interest rates and preferred length of repayment, that match your needs. And remember, throughout the process, you have the freedom to exit negotiations and seek out alternative options. You must make sure you are comfortable with the loan terms before proceeding.