Definition
A land loan (or lot loan) finances the acquisition of an unbuilt lot. Lenders consider this type of loan high risk for several reasons: - A lot generates no income and is difficult to liquidate in case of default - Land value can fluctuate significantly based on nearby zoning projects - The lot cannot be insured by CMHC (unbuilt = non-residential)
Typical lender rules: - **A-lender (bank, credit union)**: rarely available. If so, 35-50% down payment, land with municipal services (water, sewer, electricity). - **B-lender**: 25-35% down payment, rate 1-3% above a normal mortgage. - **Private lender**: 40-50% down payment, rate 8-15%, short term (1-2 years).
Common strategy: purchase land cash or with a short-term private loan, then refinance with a construction loan once plans are approved.