How to Use Vacant Land as Collateral for an Equity Loan

Tap into the value of your vacant land lot with an equity loan.
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Home equity loans are popular among people who want to unlock the cash value of their dwellings. Likewise, you can borrow against the value of vacant land with a land equity loan. Some lenders are willing to accept a vacant plot as security on the loan.

Hire an Appraiser

You'll need an estimate of how much the land is worth so you know how much you can borrow. If you've owned the property for years the value has probably changed. A licensed appraiser can figure out its fair market value. The American Society of Appraisers and the Appraisers Association of America provide contact information for local appraisers on their websites.

Title Report

Although the bank will need a title search for the loan underwriting process, it's a good idea to have one done before then. You can pay a title company to research the report or visit your county's recorders office to conduct a search yourself. The average cost of title searches vary by location. Check for any liens or obstacles you weren't aware of. If there's still a loan out on the property, make sure the information listed for the lender and the outstanding balance is correct.

Lender Search

Finding a bank that offers land equity loans may be difficult, so be prepared to do some research. Lenders have tightened lending requirements drastically. Because using vacant land as equity is seen as a bigger risk, the lender might only be willing to loan a small percentage of the equity value. If you have a mortgage and have good relationship with the lender that services it, check with them first. If they don't handle land equity loans, they might know who does. Your local bank or credit union also might offer you one to earn more business.

Complete the Application

Once you have a lender picked out, pick up a loan application and complete it. You'll have to provide financial information such as pay stubs and tax returns to verify your income. The lender also requests your credit report from the credit bureaus, then conducts a in-depth review to decide if you're approved or denied. The lender must provide a written explanation if you're denied.

Close the Deal

After your application is approved the lender schedules a closing date. Closing an equity loan on vacant land is like closing any other type of mortgage loan. There will be plenty of documents to sign with a notary public. After the loan package is completed, your funds are deposited. A security instrument is filed on public record to create a lien on the property, which means the bank has a claim on it until you pay it off.

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