But there are many who would like to buy the land, because such a purchase can safely be called a “long-term investment”. However, in the assortment of financial products, we are increasingly dealing with mortgages , home purchase or construction loans, even though a piece of real estate is the same as a house or apartment.
There are many reasons for a borrower to buy land
- Further construction of the house on this plot .
- Agriculture and the like.
- Investing free cash as an investment.
But whatever borrowers do not want to get a loan for the purchase of land, in most cases they are forced to take out either a consumer loan, a loan against an existing mortgage or a regular home loan.
There are hardly any specialized loans for the purchase of land in Latvia. But if you decide to do farming then you can bring the plot into the business plan and get a start-up loan.
Why do banks not want to lend for land purchase?
Although the land is a real estate object, it does not have increased liquidity in the eyes of the bank. Land credit is characterized by increased risks and you are unlikely to be able to obtain it without a pledge. The land has a number of specific properties , so when considering it as a pledge, the bank sets much stricter requirements for this object, for example:
- The parcel must refer to the area where the house can be built.
- Earth’s distance from the city. This limit is set by each bank differently, who will be able to grant a loan to an object located 10 km from the city center, who will agree to the loan provided the land is located within the city limits.
- The land may not belong to a reserve, a nature reserve or be in the Republic’s Reserve Fund.
- It is desirable that the main communications infrastructure (electricity, water, gas, sewerage) is located on or near the property.
- Road junction and asphalt road near land.
- Great, if the plot is already equipped for agriculture then your chances of getting a loan will increase.
- If you have decided to buy land with a total area of more than 50 hectares, do not expect too much. You are unlikely to get it because the bank does not consider too large an area to be liquid.
- There will be a good chance of obtaining a loan for the purchase of land if the area of the land is about 6 hectares.
An example of a loan for land purchase
In order to examine in more detail the mortgage loan facility, we have chosen one of the popular lending programs at Luminor Bank: the “mortgage loan”.
The real estate purchase program is based on an ordinary, unsecured consumer loan. But this amount can be used by the borrower to purchase any real estate, including land. The main advantage is that the bank does not require collateral from the borrower, so the borrower’s risks are minimal.
Such a loan does not exceed USD 12,000, so if the price of your real estate property is within this range, you can easily apply for financial assistance. In this case, consumer borrowing is an ideal alternative to a simple mortgage.