A land mortgage is used to purchase a lot or land, as opposed to buying a lot with a pre-existing structure. Land mortgages are a type of mortgage loan to aid investors in development projects, such as business or commercial real estate development. Because land is considered a higher-risk investment than an investment in building/home structures, lendors are generally more cautious when offering land mortgages. Many will require a higher deposit or down payment than a comparable home mortgage.
Land mortgages generally fall into one of two categories: commercial or private.
Commercial Land Mortgages:
These land mortgages are generally used by commercial developers in projects yielding small to medium scale commercial or residential development. Such projects could include home building, office park buildings, or retail establishments. Lendors generally offer lower rates on these types of land mortgages because they will have as collateral any and all structures on the land.
Private Land Mortages:
These land mortgages are generally used by consumers to aid in the development of residential home construction. Such projects could include building a home on desirable land, or for the development of farm/agriculture. Lendors are more cautious when offering these types of land mortgages.