Land Title Loans, Land Mortgages and Rural Property Mortgages
Here is a look at each one and why banks are reluctant to lend in each situation:
Land Title Loans (or Equity Lines)
Banks are leery about these types of loans due to the risk in the event that the borrower cannot pay down his or her loan. Lenders may provide the borrower with one or more lines of credit and the borrower would in turn put up the land up as collateral. Problems can arise when the borrower cannot pay back the loan and the bank is forced to foreclose and “take the land” to resell it. But if the land is in a remote location that is hard where the market is weak and property is tough to sell, the bank cannot get their money back or may have to wait too long a period to for the transaction to occur. This arrangement is very similar to a home equity loan, only it is based on land only, which is often harder to sell than property with some kind of residential or commercial structure standing in it.
This is a type of mortgage loan that is used to buy land or a lot. The focus is again on the land, not what is on the land. This is one of the problems banks have with land mortgages. The investment is only on the lot itself. Land by itself is seen by banks as a less secure investment than land with a house or a farm on it (unless the location is great). If the debt cannot be paid down by the owner, then the land has to be resold, rented out, or have something built on it to increase its value, leaving the bank with nothing but a piece of land to sell if they have to foreclose on it. If you CAN get a bank to give you a land mortgage, it will tend to require a larger down payment than a normal mortgage does. This is so the buyer has a larger amount of equity in the land and the bank does not have to risk as much in upfront capital.
Rural Property Mortgages
These are mortgages granted by lending institutions which focus on properties typically located outside of an urban area, and in a rural development area. Such loans are considered among the riskiest to banks due to a number of factors. One is that many of these mortgages do not require much equity upfront from the borrower. That is, the owner of the property does not have to offer much of a down payment so the bulk of the financial transaction rests with the bank.
Secondly, if something happens and the buyer cannot pay back the loan or the mortgage is reversed, it is much harder to resell the property, since it is often in a remote location. Loans for rural development are generally thought of in terms of what are you worth in the future, versus what is the property worth at present time. In other words, if you cannot make your payments, it is possible that an arrangement can be make to garnish future salaries or income to recover the cost of the loan. This occurs because banks rarely expect to be able to resell such properties in either a profitable or timely manner in a short sale or auction the way they normally can in a more urban area.
These are the three major types of mortgages that banks avoid. Let’s face it. Banks don’t like risk, and these three categories represent more risk to them due to the fact that these types of properties are much tougher to resell if the borrower defaults on the loan.
So what is the solution for you if you need these types of mortgages? Don’t agree to unrealistic “clauses” that can set you back even further! Some banks charge extremely large fees just to process your request! Don’t stand for this. Instead consider a private mortgage lender instead.
About Private Mortgage Lenders
Private mortgage lenders are not like banks. They can decide as they go how much risk they are willing to take on. They are not under the same overly structured regulations as a regular Canadian bank, nor do they have to require unrealistic upfront equity payments if they don’t want to. They have the freedom to choose what they are willing to do, based on your ability to pay, and other factors. They can work with you to decide what you can reasonably afford and work out an arrangement that is good for both parties.
If you have been to the banks and they have turned you down, and you are in need of land title loans, land mortgages, or rural property mortgages in Canada, contact us. Let us know your situation. We have faith in you to do what you say. We will say “YES” when others walk away.