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Oliver Reprich

Oliver Reprich Muskoka REALTOR

Why do banks not like to finance vacant land?

It is often more difficult to get finance on a vacant land then it is to get finance for a home, and the interest rates are ofter higher as well.

Lenders generally consider land to be a riskier form of collateral when compared to existing homes, for one reason it is easier for the borrower to walk away from a vacant lot then it would be to walk away from their home.. If the property at issue truly is vacant land (with no other structures or assets of value on the property) then the land itself will be the only on-site collateral for the lender. Land is not easily converted to a built home, the preferred residential mortgage collateral for many lenders. Likewise, lenders worry that when you borrow to buy vacant land you are not as incentivized to repay the loan as you would be if the property were your primary residence. A borrower is less likely to default on a loan when it would cause them to lose their home.

The interest rate is also normally higher, as the interest rate is what the backs use to get compensated for risk, the higher the risk the more the banks will charge.

Deopsit requirements will also normally be greater for vacant land then developed land, to ensure that the borrower has some "skin in the game", and thus make it more difficult to walk away.

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