Using Land in lieu
of A Mortgage
Down Payment
Saving up for a new home can take many people years and to most it can seem
like there is no easy answer to achieving their dream. According the U.S Census Bureau
as of July 2018, just 64% of Americans currently own their home. A hurdle that stands in the
way of homeownership for the remaining: saving up for the down payment. The great news is, there
are other easy options to help you open the door to your new home faster. Many lenders will allow
land — either owned or received as a gift — to be used as collateral instead of a cash down payment
when obtaining financing to purchase a new home.
Basics of land in lieu
Land equity is valuable, but does not work the
same as cash. It can potentially be used to help
secure home purchase financing, but will not
lower your actual loan amount like a cash
down payment.
The amount of land equity needed will depend
on the borrower’s credit worthiness, which is
determined by a lender's criteria. Depending on
the purchase price of the home and the value of
the land being used as an alternative to a down
payment, little to no additional cash could be
required to obtain financing. The lender will hold
a lien on the land used as collateral, as well as
the home. The liens will be released when the
loan is paid in full.
Prefabricated and Manufactured Home Loans
Some lenders will accept land as collateral
provided the land has equity value that meets a
certain percent of the sales price and the land is
free and clear of all existing liens. The amount of
equity required is based on the borrower’s
creditworthiness, the loan program applied for
and other factors. For example, if the sales price of
a new home is $100,000 and the lender requires
10% equity for the home loan, the land will need
an equity value of at least $10,000. The value of
the land is usually assessed by a third party, like
an appraiser or the local tax assessor. If the land
equity does not meet the required percentage, the
borrower can talk to the lender to learn about
their alternate options. Typically, manufactured or
prefabricated homes cost less than a new site built
home with land, so they can be a smart option if
saving for a down payment.
Making homeownership a possibility for everyone
Trying to secure financing can seem like a big step,
especially for first-time home buyers. But, there are
options tailored to fit just about every need.
“Our goal is to provide home financing options to
customers that best fit their needs,” said Eric
Hamilton, President of Vanderbilt Mortgage and
Finance, Inc. “If obtaining a cash down payment
is a challenge, then we have educational
resources and specific programs to help those
who want to reach the goal of homeownership.”
If you do not have any land to use in place of a
down payment, that is ok, too! Check out these
helpful tips on how to save for a down payment.
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