Sunday, March 3, 2024

Should You Use a Home Equity Loan to Buy Land? - CNET

Using your home's equity to buy land isn't as simple as using it to finance a home renovation, but it's possible. If there's a plot of land you simply must purchase, you can borrow against the equity you've built up in your home, along with other options.

One such option is taking out a home equity loan, which is a second mortgage that provides you with a lump sum of cash at a fixed interest rate. You can pay it back over a long repayment -- typically 20 years -- which helps to keep your monthly payments low.

How to use home equity to buy land

A land loan is simply a loan used to finance the purchase of a vacant plot of land. If you're so inclined to use a home equity loan to buy land, the requirements to qualify are more stringent than if you borrow the money for more conventional reasons, such as remodeling your home's master bathroom. For some, it may be harder to qualify to buy land than it would be for a first mortgage -- you'll need to have exceptional credit, a sizable income to qualify and enough money saved up for a significant down payment.

With a home equity loan, you can have a repayment term of up to 20 years, so it's important to understand the nuances of the process before putting your home up as collateral to secure the loan.

"There are instances when using equity to acquire more real estate can pay off for an investor who is very cognizant of the risks, and has done this before," says Greg McBride, chief financial officer at CNET's sister site, Bankrate....

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