3 Major Types of Collateral You Can Use On Your Land Loan

Having a piece of land you can call your own has to be one of the most satisfying things one can achieve. However, land is expensive, and if you are going to purchase it, chances are that you will need financial assistance.

last updated Wednesday, May 17, 2023
#Type of Collateral #Hard Money Lender

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John Burson

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Usually, land loans are high due to skyrocketing land prices. The lender stands to lose a lot of money should you, for some reason, become delinquent. 

You will need some assurance in the form of collateral — in addition to your income and credit rating — to show the lender that you aren’t going to default. Here are 3 collateral sources you can use to secure the loan.

Property

A lien can be added to any form of property that you own. It could be an office building, home, car, or any other physical asset with your name on it. The lender will file the lien at the county registrar’s office, where the property is registered, since the law requires the lien to be added officially. They will take care of the entire process for you on your dime. Any attempts to make changes to the property, sell it, or use it as collateral for another loan will be unsuccessful sans the lienholder’s approval.

The Land You Are Buying

The piece of land in question can also be used as collateral. In such a case, even though the deed will be in your name, you do not own the land until the loan is fully paid off. Think of it as a mortgage loan. You will take over parts of ownership (equity) to the house as you progress with your loan repayment. As the line of equity grows, it’s possible to use it as collateral for the loan.

Investments and Savings

Land, cars, and buildings are not the only assets you can use to secure a loan. Investments and savings can also be used as collateral.  The hard money lender will hold the asset, but you can still earn interest from the investment. In this case, liquidating the stock certificate and surrendering its future earnings is best if you want to take a loan.  The lender will only own the stock for a limited period, and any gains in the stock market go towards servicing your loan.

 
 
 

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