Not all financial transactions are created equally. For instance, three major types can be tricky if you’re dealing with a financial institution: Land title loan, Land loan or mortgage, Rural property loan or mortgage.
The reason why any of these three transactions can be a bit tricky is because of the high risk that is associated with them. Since there is such high risk involved, most banks avoid approving them.
Here’s a brief overview of each one.
Land Title Loan (Equity Line of Credit)
When a borrower gets a land title mortgage, this mean that the lender would have to approve lines of credit for the the borrower using the land as collateral in the event of default. However, this comes at a high risk if the borrower cannot pay back the loan, as the bank would have to foreclose on the property and sell it. Depending on the area selling may be difficult for the bank (remote locations). If the bank is unable to sell then they cannot recover their money in some cases, or in the timeframe they’d like to.
Land Mortgage Loans
To purchase land or a lot, you’d need a land mortgage loan. This is meant for land purchases only and not for the property on the land. Land or lot purchases are less secure investments when compared to land with property on them according to most banks. Banks are so leary on these type of loans because if you cannot make your payments they’d have to foreclose. They’d have to put the land up for resale, rent it out or spend their money to build on it so that it carries more value. If you do manage to get a bank to approve your land mortgage it’s likely you have to pay a much larger down payment to provide more land equity and reduce the upfront capital risk that the banks would face.
Rural Property Mortgage Loan
Rural property loans are considered to be one of the riskiest to financial banking institutions. Why? Well, they focus on properties that are in rural areas (outside urban areas). There are also a number of other reasons the risk is so high:
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Rural mortgages require little equity upfront (less down payment)
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Banks take on more financial risk due to the limited upfront equity
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If the borrower defaults or the mortgage is reversed, selling could prove to be more difficult due to the rural or remote location
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Banks may take legal action if you’re unable to pay in order to garnish your wages to recover their money
To put it simply, banks tend to avoid these three mortgage loans at all costs. They don’t like the risk involved with them. There are alternatives, you can speak to a mortgage broker to find out what options are available to you.
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