If you have any vacant land under your name, that means your money is tied up in that particular property which may or may not be useful to you during an immediate need. In such a case, you can avail an equity loan on that vacant land that will allow you to have some capital to your name. However, this is not as easy as you think to avail a loan against property, since the process has its own set of challenges.
Research
Many lenders are hesitant to go through with this kind of loan as vacant land is not the best bet for providing an equity loan. Since the land is not in use and the lender's fear that it is easy for the owner to walk away without clearing the loan. This is a risk that the lender has to take.
Contact as many lenders as you can and make sure to go with the one that you feel comfortable with. If you also have a home on the property, it is a plus point. The home creates a sense of security in the mind of the lender and will also help you to solidify your stance. Explain that you want to put up the house as the collateral too.
The Percentage
PNB housing finance mortgage in India only lends up to 80% of the value of the property for an equity loan. It is only in rare cases that a higher amount is approved. But when it comes to vacant lands, the loan approved is of a drastically lower value. In most cases, a lender will not approve a loan above 35-40% value of your property. Even if you manage to get a better value loan, the lap loan interest rate charged would be significantly higher to balance out the risk. More service charges may be levied for the loan which drives the cost even more.
Owning the land
It is best that you own the land and not owe any money to anybody for that land. This is because you get only a percentage of the value of the land in an equity loan. Any kind of balance remaining in your ownership of the property will lead to the lender, reducing the amount that they are willing to let go off. Thus it is in the best interest of you and the lender that you own the land 100%.
The Deal
When one has secured an equity loan on their vacant land, you will have to do a loan closing. Essentially, what happens in this is that the lender will enter your name as the mortgage holder for the property with the local registry of deeds. What this does is provide security to the lender and forbids you from selling the property to others before the lender is paid in full. You will, in most cases, get the proceeds of a loan and can also avail them as a line of credit.
