Friday, August 3, 2012

Can I Take Out a Second Mortgage to Buy Land?

When homeowners find a piece of land that they fall in love with and wish to buy for their next business, to build a home, or for any other reason, they often wonder if they can take out a second mortgage to buy that land. In Canada, not only can you take out a second mortgage to buy land, but you should!

In Canada it can be very difficult to get a conventional mortgage on land if you don't already own a property. Many who have never owned property before must buy land outright if they wish to own it; and those who can't do that are often forced to turn to a private mortgage, but these can often come with high interest rates. Typically only those with very high incomes or a very high net worth will be approved for a conventional mortgage and even then, the interest rates will usually be higher than those on traditional mortgages, and a larger down payment is also often required.

However, those who already own a property and have some equity in that property can take out a second mortgage against it to buy land. This is very easy and can be done through a home equity line of credit (HELOC) or a home equity loan. The process will be the same as if you were taking out the second mortgage for renovations, tuition, or just to have cash on hand for emergencies. However, if you're taking out a home equity loan or HELOC to buy land, there are advantages to making sure that you begin construction quickly on that land once financing is in place.

The biggest reason to build quickly when using HELOCs or home equity loans is because it could provide extra cash up until the lock up stage. The lock stage is the first part of a builders mortgage, when the homeowner will then need a construction loan, and will also receive the first draw on that loan. The draw is the portion of the loan that covers a certain time frame and certain work done within that time frame.

Another reason to build quickly after buying land has nothing to do with the mortgage, but ensures that you'll be able to build your property the way you had intended. Over the span of years, permits and licensing requirements could change; and if your land has sat empty, those requirements could drastically change the plans you had for your property.

Using a second mortgage to buy land is the only way to do it when you're a homeowner eyeing a piece of property. Using that second mortgage can be a great way to take care of all the mortgages you'll need for the land and the property at the same time when you start building on that land right away. And, beginning construction right away brings you one step closer to your dreams, and makes sure that dream will be what you've always envisioned, too.

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