Collateral loans using your land as collateral for your new home?

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HOW CAN YOU USE LAND AS COLLATERAL ON A LOAN?

Yes, you may be able to use the equity in your land to build your dream home!

WHAT IS LAND EQUITY?

Land equity is the difference between the value of your land and how much you owe on it.

If you sold your land tomorrow the land equity would be how much you have left in your hand.

I’M WANTING TO USE MY LAND EQUITY TO BUILD A HOUSE

Yes, some lenders will approve a construction loan with land equity (or secured loan ) dependant upon how the land values up during the loan process.

Some lenders will consider lending up to 80% of your equity for a construction loan to build your home.

HOW DO CONSTRUCTION LOANS WORK?

Construction loans are notoriously difficult as there are so many factors and people involved which increases the possibility of something going wrong.

When you apply for a construction loan the lender will need a copy of the building/construction quote or tender and the proposed plans for the construction of the house.

The lender will require their valuer to estimate the costs and value of the property on the completion of construction.

If this estimate comes out as favourable the lender/bank will take these into consideration for the loan approval.

When the builder is ready to begin and needs payments for the build he/she will be required to provide approval from council and insurance to the lender who will then draw down payments to the builder.

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WHAT ARE THE DOWNSIDES OF LAND EQUITY CONSTRUCTION LOANS?

Borrowing power is the main problem when it comes to getting a land equity loan.

This is because the bank uses the value of the land plus the cost of construction as the total purchase value.

So this means when purchasing land you need to do your research and ensure that the price that the seller is requesting is less than or close to the value of the land.

Other questions you need to ask are:

  • Is it a good location?
  • Does it have services, electrical, water, sewer?
  • How big is the land? You may reduce your chances of getting a lender if the land is too big.
  • Access, is there a road to the property?

If you already own the land and have been investing money into it then you will have sufficient land equity when you go to build.

However if you plan to build quite quickly you may be better off holding onto your savings as you then won’t have to apply through the bank to redraw them through your equity.

Therefore, when it comes to using land as collateral it is key to ensure you research the location and even have a valuation done before purchasing the property to ensure you are getting the best deal possible. This way you will have more success with the bank lending you the amount you need when you go to build and use the land as collateral.

How customers rate Jacaranda

Collateral loans using your land as collateral for your new home? Overall rating: 4.8 out of 5 based on 57 reviews.

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Fast & Safe Loans

Small Personal Loan

Loan Amount

Minimum
$300


Maximum
$2,000

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Terms

Minimum
12 Months


Maximum
12 Months

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Costs

Up to 20% Establishment Fee
+ monthly fee up to 4%

Jacaranda Finance does not charge an annual interest rate on SACC loans. These small amount loans incur 'fees' instead of interest. The maximum comparison rate on our loans between $300 and $2000 is 199.43%.

WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate
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Examples

Loan Amount of $1,000 over 6 months repayable weekly (25 weekly repayments). $1,000 (Principal Amount) + $200 (20% Establishment Fee) + $240 (fees based on 4% per month over 25 weeks) = $1,440 total repayable in 25 weekly installments of $57.60.

Loan Amount of $1,000 over 12 months repayable weekly (50 weekly repayments). $1,000 (Principal Amount) + $200 (20% Establishment Fee) + $480 (fees based on 4% per month over 50 weeks) = $1,680 total repayable in 50 weekly installments of $33.60.

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Medium Personal Loan

Loan Amount

Minimum
$2,100


Maximum
$4,600

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Terms

Minimum
13 Months


Maximum
24 Months

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Costs

Annual Percentage Rate (APR) is 48%
Comparison Rate is 67.41% per annum.

This comparison rate is based on a medium amount credit contract of $2,500 repaid over 2 years with a $400 establishment fee and APR of 48%.

WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate
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Examples

Loan Amount of $3,000 over 18 months repayable weekly (78 weekly repayments). $3,000 (Principle Amount) + $400 (Establishment Fee) + $1,379.06 (reducing interest*) = $4,779.06 total repayable over 18 months with weekly installments of $61.27.

Loan Amount of $4,500 over 24 months repayable weekly (104 weekly repayments). $4,500 (Principle Amount) + $400 (Establishment Fee) + $2,732.56 (reducing interest*) = $7,632.56 total repayable over 24 months with weekly installments of $73.39.

* Reducing intertest means that the 48% APR is applied to the outstanding balance on a loan. When a loan repayment is made, the loans outstanding balance goes down and the APR is applied to that lower balance. Therefore, the interest component of the loan will constantly reduce (as long as repayments are being made!) - thus it is called reducing interest.
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Large Personal Loan

Loan Amount

Minimum
$5,000


Maximum
$10,000

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Terms

Minimum
13 Months


Maximum
24 Months

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Costs

Annual Percentage Rate (APR) is 21.24%
Comparison rate is 48% per annum.

WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate
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Examples

Loan Amount of $5,000 over 18 months repayable weekly (78 weekly repayments). $5,000 (Principle Amount) + $2,027.80 (Interest) = $7,027.80 total repayable over 18 months with weekly installments of $90.10.

Loan Amount of $10,000 over 24 months repayable weekly (104 weekly repayments). $10,000 (Principle Amount) + $5,577.12 (Interest) = $15,577.12 total repayable over 24 months with weekly installments of $149.78.

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