Do you have a construction or self-build project? Before building your house, you’ll need to find land and secure financing to purchase it.
As you may know, financing land is different from financing an already-built home. What is the required down payment? Is it harder to get a mortgage for land? Let’s answer those questions.
Financing land: defining your goals
Before applying for a loan to buy land, the first step is to define your goals and the specifics of your project. Your objectives will help guide you in selecting the right type of land for your needs.
Types of land
In Quebec, land comes in various types, each serving a specific purpose. These include:
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Residential land
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Commercial land
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Industrial land
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Agricultural land
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Forested land
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Land for real estate development
Naturally, the financing process and the terms you can obtain will vary depending on the type of land you choose.
The project development schedule
When purchasing a vacant lot, the bank you work with will want to know your goals regarding construction. Do you plan to build immediately after purchase? Or, on the contrary, do you intend to wait a few years? Once again, your answer will influence the financing offered.
What is the required down payment to buy land?
Before securing a mortgage, you'll need to provide a down payment, which can come from various sources, such as:
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Personal savings
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A non-repayable gift from a family member
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Your RRSPs (through the Home Buyer’s Plan)
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Funds from the sale of your house
The down payment percentage may vary depending on the lender and the type of loan. Typically, banks require 20% of the purchase price, meaning mortgage insurance will not be necessary.
What kind of mortgage do you need to buy a land?
Like any mortgage, you’ll have several loan options to choose from: open or closed, fixed rate or variable rate, and more. It's recommended to consult with an expert to help determine the best option for your specific needs.
Additionally, depending on the details of your project, you may be able to access one of two types of loans: a loan for residential construction or a loan for commercial purposes. Let’s take a closer look at each option.
1. Loan for residential construction
When buying vacant land, the bank will want to understand your construction plans. If you're planning to buy land to build your home, you may have access to different types of loans depending on your project's timeline. Do you intend to build right away, or will you wait a few years? Your answer will impact the financing options available to you.
Do you intend to develop the land right after purchasing it? Some banks offer short-term loans for land acquisition. This flexible option allows you time to finalize zoning applications, connect utilities, or meet other requirements before starting construction.
Some loans can even cover the cost of building your home, in addition to the land.
If you don't plan to build within a year of purchasing the land, you can still secure a longer-term loan. Again, the terms offered will depend on the bank you choose to work with.
Regardless of the type of loan you need, to secure financing, banks typically require you to present your construction project to assess its feasibility. Loan eligibility and conditions (such as down payment, term, amortization) may vary by lender.
2. Loan for commercial purposes
If you plan to buy land for commercial use or real estate development, the financing process will differ from that of someone purchasing land to build a home.
To have your loan application approved, you'll need to present a solid business plan and demonstrate an established exit strategy.
Which banks finance land purchases?
Not all financial institutions in Quebec offer loans for land purchases. Among the major banks that do, you'll find:
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Desjardins
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National Bank
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Royal Bank
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First National
These are some of the most prominent, but not the only options. You can also explore independent or alternative lenders.
Before a loan is granted, certain checks will be conducted, including:
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Your borrowing capacity: You'll need to demonstrate that you have a strong financial situation to meet your obligations.
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The market value of the land: The bank may hire a licensed appraiser to ensure the purchase price reflects the land's true value.
If you're looking for the ideal lender and want to easily compare terms, consider working with a mortgage broker!
The mortgage broker: your best ally in the process
Securing financing for land can be more complicated than for a pre-built home, which is why working with a mortgage broker is a smart choice.
This professional is an expert in the industry and can help you compare and negotiate loan terms from different financial institutions, ensuring you get the best deal. And the best part? His services are completely free for you!
Looking to secure a mortgage loan to buy land?
XpertSource.com can help you in your efforts to find a mortgage broker. By telling us about your project, we will refer you to top-rated experts, free of charge! Simply fill out the form (it only takes 2 minutes) and you will be put in contact with the right experts.
