Home and Land Equity Loans Compared

Land equity loans use the wealth you have built up in land you own to secure financing. Home equity loans do the same thing, except they use the wealth you have built in your home. This fundamental difference between the two is the primary factor separating them. However, there are several other elements that make these loans different from each other.

Home Equity Loans May Calculate Land Value

Home equity loans tap into the value you currently own in your home, even if you are still making mortgage payments on the home. Typically, the value of your home or your home loan includes the value of the land the home is on. It is virtually impossible to value a home without considering factors of location. The same home placed in Kansas City, Missouri, and Los Angeles, California, for example, will have a markedly different value. The same thing goes for a hand placed on a corner lot versus a middle lot, or on a busy street versus a cul-de-sac. Ultimately, your home equity loan will be extended based on the value of your home as well as the value of the property it sits on.

Land Equity Loans Use Land Alone

Your land loan, in contrast, will not consider the value of your home in any way. In fact, you can secure a land equity line of credit even if you do not have a home or building on the land. Like a home equity loan, a land loan can be extended on a property you do not yet own outright. In this case, you will secure the loan based on the asset level you have built thus far with your payments. If you bought the land in conjunction with a home and financed both at once, it may be difficult for a lender to determine how much equity you have in the land alone.

Land Equity Loans finance Land Improvements

You can use a land equity loan to finance improvements to the land itself. You can finance septic changes, well installations, landscaping or grading and drainage. This comes in handy when you are preparing the land for building. These changes may not have value in themselves, but they make a site valuable as a potential spot for the development of a home or commercial property. 

Land Equity Loans May Be Used for Down Payments

If you own land and are looking to develop it, you may be able to use the land itself as a down payment instead of using cash. This is essentially a way of securing the land with an owned asset instead of securing the loan with the asset you have yet to build or acquire. This option will not only save you money on your down payment, it may also help you save money on financing costs by leading to a lower interest rate.


Improve Your Credit Score - Free Consultation