Many potential property owners and investors look to financing land purchase over fully-built homes in Ontario, whether it is for commercial purposes, investment, or building a custom home. But many Ontarians are also confused about getting a land mortgage in Ontario, and it can be challenging to find helpful information regarding how it works.
When looking to get a vacant land mortgage in Ontario, some factors need to be considered to guide your purchase decision. Let’s break down the details below.
The types of land for a mortgage in Ontario
When it comes to purchasing land, there are three main categories under which all land will fall. These categories will also affect the details and rules regarding getting a mortgage on vacant land in Ontario.
This type of land is exactly as it sounds; it refers to any land that has not been developed or worked on in any way, and it doesn’t have any power, water, or gas lines available for use. Because it is practically untouched, this land will likely require a good amount of construction and development work before it is suitable for building.
This type of land is usually close to other developed and occupied land spaces and is usually either partly or fully developed. It may already have existing lines to utilities like gas and electricity and is much closer to being ready to build on than raw land. Note that the area must not have been used for many purposes and can’t have anything built on it to qualify as vacant land. Farmland, for example, is not vacant land; it is being used for farming and often has sheds, barns, and other buildings on some part of it.
The government owns this type of land. Getting a land mortgage in Ontario for Crown land will require you to satisfy the provincial government’s requirements. The government can also rent out Crown land for various purposes, and almost 90% of Ontario is crown land.
Which type of land is best for a land mortgage in Ontario?
The three types of land we covered before represent three different circumstances with their own considerations. Getting a vacant land mortgage in Ontario depends on your needs and how much work you’re willing to put into developing the land.
Raw land is the cheapest type of land to buy, as it holds the most negligible value in its current state to the owner. However, this also means that it requires the most amount of work before it’s ready to be used for building. It’s very easy to find an affordable price for raw land but also challenging to find a lender to finance a land mortgage since it’s unusable in its current state. Since it lacks any connection for water or electricity, you’ll need to commission the municipality or have them done yourself. Some remote locations may also require you to build roads for physical access to the area, which can be a steep investment depending on how far off the beaten path you are.
Vacant land is more expensive than raw land, but it’s also much easier to start building on since being at least partially developed means there is much less work to be done towards it. In addition, since vacant land is usually nearly fully developed, it has likely been developed as part of a previous construction project. It may have at least some if not all service lines for electricity, water, and cable lines in place. This makes getting a lender to finance a land mortgage in Ontario for vacant land much easier.
Crown land offers various options such as lease and rent alongside the purchase option, but getting a land mortgage in Ontario for Crown land means paying taxes for certain usage reasons and is subject to Ontario’s Crown Land Disposition Policy. If used for purposes that suit the public, Crown land might be sold at a lower rate as well. However, Crown land is often far off and remotely located, away from major cities and towns. In addition, most of the urban and suburban areas in Ontario, especially the southern region, are privately owned. This can make finding a local area of Crown land for sale quite tricky.
Options for getting a land mortgage in Ontario
Standard land mortgage
The most common option for getting a land mortgage in Ontario is a standard land mortgage loan. However, note that raw land and even vacant land to a certain extent pose a degree of risk for lenders. Big banks and other larger lenders may not be willing to finance a land mortgage in Ontario for raw or vacant land. Land mortgages also usually require larger down payments, between 30 to 50% of the total price, which might not be affordable for some interested parties. Private lenders are a better option in cases like these, and mortgage specialists that can connect you with various lenders offering land mortgages in Ontario are even better.
Another option for financing a land mortgage in Ontario is getting a home equity line of credit (HELOC), which will take equity from an existing home that you own and use it to fund your land purchase. Other similar options like refinancing your home or getting a second mortgage are also valid options for getting a land mortgage in Ontario, though these tend to pose bigger risks and come with high rates.
Also known as a take-back mortgage, seller financing is an option where the land’s seller will act as the lender for your land mortgage in Ontario. This involves buying the land from them, complete with a down payment, and paying back your mortgage in installments. However, note that for this option, the rates are entirely up to the seller’s discretion, and you can find yourself paying a significant amount of interest on your payments.
Getting a land mortgage in Ontario can be a great investment for those with the capital to finance it, and it can be a great way for would-be homeowners to build the home of their dreams. However, directly buying land comes with its caveats and requires careful consideration of the type of land being bought.
With the difficulty of navigating the land market, it’s best to rely on the mortgage specialists at Mortgage Maestro to help find the financing options you need. Our team of specialists have dealt with a wide variety of mortgage needs over the years, and we’re ready to help you find the best rates and options. Contact us today to learn more about how we can help!