Land mortgage, how does it work, how to apply for it and how much do they give?

Can a piece of land be mortgaged?

In principle, it is possible to mortgage the purchase of any land, whether it is rustic, developable or urban. However, this does not mean that the operation is always viable or attractive for your bank.

It is important for the bank to be able to foreclose its mortgage guarantee if necessary, without difficulties and without loss of value. This can be more difficult when buying land than a home, which will typically rise in value over time.

How does a land mortgage work?

Land  mortgages are used to exclusively finance the purchase of land, whatever type it may be. Please note:

• Few entities offer them because, as nothing has been built, the risk is greater.
• The interest rate is usually higher and, therefore, it will be a more expensive product.
• The maximum repayment period is also usually shorter, up to about 20 years.
• As we will see, the percentage you can request will be less than 80%.

How to apply for a mortgage to buy land?

If you want to opt for this type of product, you must be especially clear and strict when providing all the necessary documentation to gain the bank's trust and demonstrate your solvency. Please note: 

• Getting a mortgage for land will always be more difficult than getting a mortgage for housing, and the conditions will be worse. That is why it is important that you 'dress' your proposal with as much information as possible to obtain a high valuation and convince your bank.
• The bank may require an urban planning authorisation, land use certificate, a construction plan or special insurance.
• You must have enough savings to cover a large part of the cost of the land and the expenses and taxes associated with the operation. Remember that banks do not usually finance more than 50%.
• Your solvency and level of indebtedness must be very low: the bank will always carry out a risk analysis before going ahead with the operation.
• It is likely that very few entities offer this type of mortgage loan and, therefore, your negotiating capacity is reduced. Evaluate the available options and keep in mind that there may be other types of products, as well as other more attractive purchase options.
• Avoid decapitalizing more than advisable or taking on a higher risk than recommended, especially if you later want to apply for a self-developer mortgage to build your house. Unpleasant surprises are likely to arise in the form of extra expenses and delays during the construction process, and you'll need to be financially comfortable enough to take care of them.

  Which banks give mortgages for land?

  In general, banks do not offer mortgages for land, and there are currently no entities that have this type of loan in their portfolio of mortgage products. If you want to obtain a loan of this type, you will have to negotiate with your bank or another entity to try to obtain this financing.

  However, it is possible to take out a personal loan and use the money to buy a piece of land, although the interest will be higher and the repayment period will be shorter. Of course, you can pay for the entire land with the money requested if you wish.

  Another option, less attractive due to its high interest rates, is to apply for a loan with a mortgage guarantee to buy a piece of land. This product consists of using a property you own as collateral for the purchase of your new land, with the important disadvantage that you could lose your home in the event of non-payment.

  How much mortgage do they give for a piece of land?

  The conditions offered by land mortgages are usually less favourable to the customer. Normally, the amount you can obtain will not exceed 50% of the lower of the amounts between purchase price and appraisal value. In the best-case scenario, you'll be able to reach 70%.

  In general, signing land mortgages is not very attractive for banks, except for exceptions that need to be justified, so they will not be willing to lend you a high percentage either.