Mortgage loan to buy land

Bank financing can be obtained not only for the construction of the house, but also for the purchase of land for future development. The amount of financing is up to 70% of the transaction amount.

It is generally accepted that banks issue loans only for the purchase of a house, and applications for a land loan are rejected immediately, almost without consideration. Swedbank expert Normunds Dutsis assures that this is not true: it is also possible to get a loan for buying land, and its size will depend on a number of objective factors.

Let’s start with the fact that there are two categories of buyers – some of them buy land with the idea to start construction sometime in the distant future, while others choose a plot of land, having a firm intention to start construction of their own house immediately after the registration of documents.

In the first case, the size of the bank’s co-financing will not exceed 50% of the purchase amount, and in the second case it may reach 70%.

Choosing a plot of land, you should find out whether construction is allowed there, as the bank will not give a loan to buy a beautiful lawn without the right to build.

How is the value of land determined?

Many mistakenly believe that the price of land is determined by its cadastral value. In fact, the bank does not even look at it. A much more important role is played by the market value of the land, which can be obtained from certified appraisers, as well as the amount of the transaction.

If the price of the land plot exceeds its real value, the financing will be provided on the basis of the market price of the plot, and if you can find a seller who gives his plot cheaper than the average for a particular area, the amount of financing will be determined by the amount of the purchase.

Land as an investment target

According to the expert, individuals who want to buy and sell land, earning on it, are unlikely to receive a mortgage loan from the bank. The bank helps those who have the right motivation to find their own place to live and will eventually use it to meet the needs of their families.

In addition, under this condition, the client takes the transaction more seriously and carefully, which is very important because it takes a large amount of money for a very long time. An exception is when the client has other collateral, such as an apartment, which he or she can mortgage to buy another property (in this case a plot of land).

Are communications important?

If you plan to take out a mortgage to buy land, but do not intend to start construction yet, it is important for the bank that the site in the future was suitable for private development, had certain limits, as well as it could be connected to communications, such as electricity.

If the communications are not yet available at the time of purchase, this can have a significant impact on the value of the land and, as a consequence, on the amount of funding.

In turn, if you want to buy a plot of land that has yet to be separated from another larger plot of land and/or the status of which needs to be changed from agricultural land to private land, you may not count on bank financing.

Buy land or build it right away?

People who dream of owning their own house are divided into two categories: some people first look for a suitable plot of land, while others first come up with the house of their dreams and only then begin to look for where to land it.

In both cases, two options are possible: buy a plot of land, wait a little (and at the same time save money) and only then start construction or go straight to the bank with a clear vision, demanding a loan for the purchase of land and construction of a house.

Normunds Ducis said there are more and more clients who bought land earlier and now decide to build it. In this case, the value of the land can serve as a co-financing for the client.

In turn, those who want to buy a plot of land and start building it right away must provide the bank with sketches of the project and preliminary estimates. In this case, the bank takes into account the future value of the project when deciding on the amount of financing to be provided.

Real estate appraisers determine the future value of such a house and, based on this amount, the bank decides on the amount of the loan. It should be noted that the future value of two identical houses may differ depending on their location.

Houses in the vicinity of Riga and more remote regions cost differently, respectively, the amount of the available bank loan will also be different.

Customers wishing to build immediately can also use Altum’s support program to buy land and build a house, but it cannot be used if you plan to buy only land. Therefore, Altum support is only available for housing construction.