For instance if you’re talking about bare land in a rural area that is completely undeveloped in any way shape or form, the financing amount that could be available may be as low as 40% to 50% of the as is market value of the property.
Contrast that to a fully developed lot in the middle of a built out urban area where the loan to value you can secure can get as high as 75% of the fair market value.
Both banks and private lenders will consider bare land loans, but in keeping with all bank or institutional lending, you would have to meet all the typical lending requirements such as credit rating and cash flow to service the debt.
Most bare land mortgages are provided by private lenders who clearly understand the value of the land and its resale market and are not afraid of having to sell the land off in order to recoup their investment if required.
From a lender’s point of view, they would rather finance a piece of property that is being acquired versus providing financing for bare land real estate that you already loan.
This is because a market value transaction has occurred whereby someone is buying and someone else is selling at a negotiated price versus having to rely on a market value appraisal where there may not be a lot of strong comparable sales to establish value from.
The more the land has been improved and/or the closer it is to further development, the more likely it will be to locate and secure a lending source.
Because the majority of these types of transactions are provided by private mortgage lenders, it makes sense to be working through a mortgage broker with experience in bare land financing as the private lenders that do these types of deals can be sometimes hard to locate with broker assistance.
But a mortgage broker can be just as helpful if you want to try go through a bank or institutional lender as those that are prepared to do these types of deals can also be hard to find.
If you’re in need of a bare land loan for acquisition or development, I suggest that you give me a call so I can quickly assess your requirements and provide available land financing solutions for your immediate consideration.
A Toronto land loan can potentially be acquired via a institutional or private mortgage lending source, depending on the property and the credit profile of the borrower.
Bare land loans are typically financed at a level no greater than 50% of the current market value. In some cases, if a property is very near to being developed or built on, the loan to value can increase to a level of 60%.
Location plays a large role in getting a mortgage lender interested in providing a land loan. If the property is within an existing developed area, or directly adjacent to one, then its likely going to be easier to secure commercial mortgage financing for the site. For bare land sites that are more remote, the general interest in the property may be much lower if mortgage lenders feel that there isn’t going to be much of an active market for the property in the coming year when the mortgage term would be in place.
A Toronto land loan in the form of an institutional mortgage can see rates as low as prime plus 3% which is going to be higher than the mortgage financing on developed real estate property, but still considerably lower than what you would have to be paying a private mortgage lender.
In cases where bare land is held for future development or speculation, mortgage financing can be an excellent source of capital to utilize for other purposes. And as the value of the land increases, so is the potential amount of funding that can be mortgaged against it.
Toronto bare land can also be used as secondary security for a loan facility on another piece of real estate where there is insufficient equity available to secure the initial mortgage request.
Bare land mortgages are also commonly used as security for bridge loans where the loan to value might be significantly lower than 50%, allowing the mortgage to be put into place quickly as the lending risk would be much lower on a security value under 50%.
If you need a Toronto land loan for any of the mentioned applications or some other purpose, give me a call so I can quickly assess your requirements and provide relevant land loan financing options for your immediate consideration.