Paying upfront for a property isn’t everyone’s cup of tea, and saving such a lump sum amount can take a lifetime. However, it does not mean that you will have to give up on the dream of owning your own house. All you need is the right finance tool, such as a residential plot mortgage.
A mortgage is another word for a loan on immovable property. An individual can use it to buy any real estate property like a house or land. There are various types of mortgages available in Canada. However, in this article, you will get to know what a residential plot mortgage is and how it works. Click here if you want to know more about land mortgages.
What Is A Residential Plot Mortgage?
A residential plot mortgage is a long term loan that can help you gather finances to purchase a new piece of land. A residential plot mortgage is also known as a self-build mortgage. A lender approves a residential plot mortgage only when you have a coherent plan ready for construction, i.e., a blueprint for the development of the land.
The lender does not disburse all the amount in one shot; they instead release phase-wise payment at different stages of constructing the house for land, material, and labour.
You can comparably find a lender for residential plot mortgages more easily than other mortgage forms. Moreover, the interest rates for a residential plot mortgage are also very low. It is also pertinent to mention here that you can avail a residential plot mortgage for purposes other than building a house too.
How Does It Work?
The residential plot mortgage works pretty much like any other kind of mortgage loan. The lender provides finances for you to purchase a piece of land as per your eligibility after submitting the down payment. You are required to pay back the borrowed amount with interest within a predetermined period of time.
The duration of a residential plot mortgage is typically shorter, and it attracts higher interest rates as there is no house on the land to provide collateral.
The sanction of a residential plot mortgage depends upon many factors, including specific down payment requirements, requisite credit score, etc. However, you will find a very limited number of lenders that offer a residential plot mortgage despite more stringent criteria. It is due to the higher risk of default involved.
What Are The Down Payment Requirements For A Residential Plot Mortgage?
As mentioned earlier, the down payment requirements for a residential plot mortgage are higher due to the higher risk of defaulting the payment. Depending on the province, location of the residential plot, its market value, and other factors, the down payment rate may vary anywhere around 20%.
Is A Residential Plot Mortgage The Same As A Home Loan?
People often misunderstand a residential plot mortgage with a home loan. Although they are both related to property and real estate, they both have their own significance and are not entirely similar.
On the one hand, a residential plot mortgage means borrowing money for the land on which a house is yet to be built. On the other, a home loan means a loan on an already built or under construction house or property.
Some other differences include-
- The down payment requirements are higher for a land mortgage than a home loan.
- Interest rates are higher for a land mortgage while significantly lower for a home loan.
- The tenure of a land mortgage is much shorter than that of a home loan.
Things To Consider Before Buying Land
Here are some things you need to consider before buying land:
The Legal Documents
The first and the most important thing is to check all the documents associated with the land. Ensure that the property is not involved in any ongoing case and truly belongs to the owner from whom you’re buying.
Before you buy any piece of land, you have to decide whether its location suits you or not. For example: If you are buying land for agricultural purposes, you should check whether the location has a nearby water facility or not.
Compare The Value Of Different Plots
Never be in a hurry to buy land. Instead, carefully research all the available options and only then buy the best one.
Different areas are meant for different purposes. Thus, it is essential to be familiar with the zoning laws before buying any property in any province in Canada.
Talk To The Locals
The last and most important thing is to talk to the locals regarding the property and its owner. It gives you a clear idea and an overall view about whether you should really buy the land or not.
Pros & Cons Of Residential Plot Mortgage
- You get rid of the borrowed amount in a much shorter period than a home loan.
- An easier way to become a property owner
- You can refinance it into a home construction loan down the road.
- It can be challenging to find a lender
- No flexibility
- Higher interest rates
A residential plot mortgage is an excellent financial tool for purchasing a piece of land in Canada with a shorter repayment schedule. However, the interest rates and down payment requirements are higher for a residential plot mortgage than a home loan. But on the brighter side, you get to enjoy the ownership of the land sooner than you expect.
Lastly, it would be best to conduct thorough research about all of the included factors before going ahead with a residential plot mortgage. It will save you from fraud lenders and land you a great deal at a reasonable cost.
Where can I get a mortgage for land?
To start with, Small banks and building societies provide self-build residential loans at affordable interest rates. But if you do not have much knowledge about loans on mortgages, you should always consider a mortgage broker for it.
What is the minimum deposit amount required for buying a Farm mortgage?
The range of deposits lies between 20% to 50%. Moreover, you also need to submit a rough draft of the plan along with your application.
Is it possible to get a residential plot mortgage if I have a bad credit score?
Although the process will take a little more time than usual, getting a loan even on lousy credit is possible. A good mortgage broker can help you to achieve this goal quite easily.