When it comes to purchasing land, time is your friend.
Unlike volatile investments such as stocks and bonds, the trajectory of land’s value steadily increases as time passes. And if you find one in a good location and buy it at the right price, you can expect its value to go up within the next few years.
But since it is a finite resource, purchasing land can get expensive, especially if it is in a good location. So as experts in land-based assets, you can trust us when we say there is no better time to invest in land than now.
Of course, we are not saying you should immediately withdraw your life’s savings to purchase a plot or settle by just buying about any parcel of land just to add it to your assets. There are numerous ways to acquire land.
And one way to purchase land without using your money upfront is by applying for a loan.
Why Should You Consider Applying for a Loan?
Applying for a loan to purchase land will help you be flexible with your resources. It can help you find ways to earn more instead of limiting yourself to what you have left.
More often than not, people with money who can afford to buy land with cash often prefer to get a loan. This way, they can use their money to invest in other assets, such as stocks or bonds.
However, before shopping around for a loan to purchase land, you should decide what you will use the land for and prepare several documents before filling out the forms.
How to Apply for a Loan
Among the different types of investments, land is a flexible asset. Once you own a parcel one, you can do whatever you want with it: lease, sell, or keep it as it is–the list can go on.
But if you are applying for a loan, the lender, in this case, the government, bank, or private lender, has to have a good reason to offer a loan.
Aside from purchasing land simply to have and own a plot, below are some examples of land investments:
- Acreage for crops and livestock
- Small-scale farming
- Commercial and industrial
Once you have a good idea and an initial plan of what you would like to do with the land, it is time to prepare the paperwork.
To apply for a land loan in Canada, lenders usually require the following documents:
- Financial statements or income tax history
- Birth certificate or proof of citizenship
- Statement of assets and liabilities
- Credit information
Other lenders would ask for more specific paperwork if you plan on using the land for agriculture, agribusiness, commercial or industrial purposes.
Types of Loans You Can Apply For
The type of loan you will apply for depends on what you need it for and how you will use it.
Below are several types of loans, their usage, and coverage that the government, banks, and private lenders usually offer.
Canadian Agricultural Loans Act (CALA)
The government created CALA, a program specifically for people looking to purchase land to build or develop a farm, that backs lenders who finance agricultural properties.
Loan amounts can go as high as $500,000 to help you purchase land, build structures upon it, and buy equipment.
And because the federal government guarantees to repay 95% net loss if a loan defaults, the downpayment is lower than the other types of loans below.
A land loan or mortgage is a loan where the title of the land serves as collateral.
This type of loan usually has a higher down payment and interest rates because banks will have a more difficult time reselling it if a loan defaults.
A construction loan allows you to purchase land and equipment you need to build on it.
Construction loans come in stages or draws where you can access remaining funds once you have completed a milestone or phase in your building plans.
This type of loan is perfect if you are building a house on the land you are purchasing since you no longer have to take out a second loan or mortgage to construct your home.
Home Equity Line of Credit (HELOC)
If you currently own real estate and are planning to purchase land, you can use your home’s equity as a loan with HELOC.
In this option, you have a higher chance of having a loan with better interest rates since your house will serve as collateral.
Instead of having the government or a bank offer a loan, a seller or vendor can offer to act as a lender.
Since this is not a traditional loan setup, you can negotiate directly with the seller regarding the down payment, payment terms, and interest rate.
This option will also allow you to use the land, but the seller will transfer the title of the land to your name once you pay off all the payments.
If you are having a hard time getting a loan approved or if the interest rates offered by the bank are not in your favor, you can choose to work with private lenders.
Like seller financing, different private lenders will have different loan setups. However, they tend to offer shorter loan periods with higher interest rates compared to banks.
Your Partner in Buying Land in Alberta
Once you have a loan approved, it’s time to start looking for land. Before you purchase land, make sure you do your research on the type of land you are purchasing and the risks and rewards that come with it.
Hansen Land Brokers is a boutique land brokerage firm that can help you find and purchase land in Alberta. With more than 30 years of experience, our team of land brokers can help you determine which type of land is best for your investment and where you can find it.
Contact us today, and one of our land brokers will assist you.