Can I Buy Bareland and Get Mortgage Financing on it?

The Truth about Buying Bareland in Canada

Vacant land is tough -- not impossible, but tough. Most lending institutions don't want to finance vacant land because it may sit without ever being developed. The value and security does not give the banks warm fuzzy feelings if it sits there for years naked.

If you have a high net worth and a healthy income, you may likely get approved for a conventional mortgage, albeit at a higher interest rate and possibly with a larger deposit than for a home.

If your means are more modest, and you don't have the cash to buy a piece of property outright, I can shop around at different lending institutions and tap into other non-traditional sources of funding such as private mortgages, in which a private individual or company backs your loan. These usually have a lender fee and a significantly higher interest rate than traditional mortgages, so it encourages you to develop or build on your land quickly, and pay it out with a traditional bank mortgage.

Alternatively, you may want to consider taking out a home equity line of credit on your current principal residence and buy your land outright. This is useful if you are planning on building right away, as it may carry you through to lock up, the first stage of a builders mortgage, when you will get the first draw of your construction loan (see construction loans).

Many first-time land buyers think if you buy a lot, you can start building whenever you're ready, in whatever way you want. It's not quite that easy. It is a sad day if you buy the lot of your dreams and find out that you can't build what or how you want.

If you're buying a property to build something on, you have to make sure that the bylaws that regulate the property allow the use. Bylaws regulate everything from the percentage of the lot that can be covered by buildings to where you can place your septic system. And just because a neighbour has built a certain style or size of house, that doesn't mean you can, too.

While your realtor and your lawyer can help you with the specific conditions you should include if you decide to submit an offer (such as pending a building permit and well and septic approval), here are a few questions that you need to consider:

* Is there a proven source of water on the property? If so, how deep is it? Wells are priced per foot of digging.
* How will wastewater be removed from the property? Can the geology of the land support a conventional septic system?
* Is there an up-to-date survey showing the boundaries of the property, any improvements, buildings and setbacks?
* Does the seller have good title (evidence of legal ownership, liens, etc.)? Is it a legally partitioned lot?
* Are there any easements or right of ways on the property that give other people (from neighbours to the phone company) access to a piece of your land?
* Are there any environmental problems with the land such as soil contamination? What was the property used for previously?
* Is the area in question under study by the municipality for future rezoning or land use? Or, are any neighbouring properties being assessed for a rezoning, for example, from residential to commercial?
* Are there any restrictive covenants that prohibit certain uses on the property? For example, can you set up a home office or clear a section of trees?
* What services are offered in the area -- can you get mail delivery, garbage and recycling pickup, hydro access, high-speed Internet or even a hard-wired phone?

Buy now, build later?

While many people buy land for future building, there are risks to shelving your dream as planning and environmental rules may change. Consider landowners outside Toronto that had their property permanently protected from development under Ontario's Greenbelt legislation.

If you're buying for the long-term, you have to be aware that what you may want to do 20 years from now is not what you could do today, If you fall in love with a lot, you better know you can do what you want with it. Vacant land is vacant land. It's not a good investment if you can't do what you want.

Fiona Wagner is a freelance writer in Georgetown, Ontario