How to obtain a mortgage on a plot of land

Basic requirements of banks

Land mortgages are regulated by the following legislation:

• Land Code of the Russian Federation.
• Civil Code of the Russian Federation.
• Article 62 of Chapter XI of Federal Law No. 102 “On Mortgage”.

When a loan agreement is drawn up, the land becomes the subject of collateral, the bank becomes the holder of the collateral, and the borrower becomes the mortgagor.

Banks consider areas without buildings to be assets with low liquidity. In addition, they are subject to the risk of depreciation. This is due to the fact that at any moment such an unpleasant neighborhood as environmentally unsafe production may appear. When applying for a land loan, special requirements are imposed on borrowers and collateral.

The site must meet the following general requirements:

• Location 30-50 km from the city.
• Does not belong to the category of nature reserves, national parks, water protection and reserve zones.
• An area of ​​more than 5 acres.
• Intended for individual construction.
• Transport accessibility.
• Availability of communications - water, gas, sewerage, electricity.
• Registration in Rosreestr.
• No encumbrances.
• Ownership, which is entirely registered in the name of the borrower.

Procedure for obtaining a loan

When deciding to take out a mortgage to purchase a plot of land without a building, you need to follow a certain pattern. Some people mistakenly believe that they first need to choose a suitable plot option, and only then contact a financial institution to apply for a loan. In practice, things are different.

It is necessary to take into account that each of the banking institutions offers its own conditions and has some peculiarities in the execution of agreements for this type of mortgage. First, you should decide on the choice of a financial institution, and only then move on to choosing a suitable land plot, taking into account the criteria for the allotment established by the bank. This approach will save you a lot of time and effort.

A land mortgage is issued after the borrower provides a whole package of documents. The list is identical for all banking institutions, the differences are insignificant. This set includes:

• Document on state registration of rights - its copy certified by a notary
• Cadastral extract for the plot in the original
• Extract from the Unified State Register of Legal Entities for land, etc.

You will also need to attach documents that can serve as confirmation that the borrower is working, has a sufficient level of income, etc.

All collected papers are sent for verification to specialists in the analytical department of the banking institution. If necessary, additional requests may be submitted to owners, borrowers and notaries. Only after a thorough analysis of the documents provided does the financial institution issue a verdict regarding the possibility of a particular borrower obtaining a land mortgage. Usually a decision is made within 3-5 days.

On the agreed day, the mortgage agreement, purchase and sale agreement and insurance agreement are signed. The borrower then needs to transfer the down payment and borrowed funds to a safe deposit box at the lending institution. The final stage is registration of ownership rights to the newly acquired plot.

Differences between a mortgage for an apartment and for a plot with a house

Banks are more willing to provide funds for the purchase of an apartment, and lending to houses is carried out with great difficulty.

This is due to their significant differences:

It is difficult to evaluate a country house, since the following criteria are used:

• Distance from the city.
• Construction cost.
• The prestige of the place.
• Availability of access roads and communications.
• Availability of infrastructure and water bodies.

Note! Each house is individual, and apartments in most cases are standard. If the house is located in a cottage community, it is easier to get a mortgage for it. This is due to the fact that its market value is higher.

What to look for before purchasing a plot of land

Citizens who have selected the ideal plot (in their own opinion), before concluding a transaction, need to focus on significant factors that, over the years, can have a significant impact on the formation of the price of the acquired land plot. Let's look at these points in more detail:

• Initially, get to know your future neighbors and ask questions regarding current affairs in the area. You should unobtrusively learn about the safety of the area, the quality of the land and other important subtleties, information about which is available only to those people who have lived in this area for some time. Find out which factors of the local land they consider disadvantages and which advantages.
• After this, start exploring the area adjacent to your site on your own. Pay attention to the presence of access roads and communications and ask residents if there are production bases nearby that can pollute the environment.
• It would be a good idea to study the information posted in the media. For example, on the Internet or in the latest press you can find interesting articles regarding the area in which you are buying a plot of land. Electronic and printed publications may contain information about environmental problems of the area or an aggravated criminal situation.

Mortgage on land without a house

The land plot must meet the basic requirements of the bank:

• Good transport accessibility.
• Developed infrastructure.
• Availability of access roads.
• Compliance with the permitted use category and the borrower's purposes.
• The land is owned by the seller and not leased.
• All communications have been completed.

If the land meets all the requirements, and the history of the title holders is short, the borrower has every chance of getting it on a mortgage loan. It is important that the site is liquid and has value for the bank .

Mortgage on a plot of land with a house

There are now no problems when registering ownership. If previously it was necessary to register a plot of land with the cadastral register and separately register ownership of real estate, now the procedure has been significantly simplified.

On January 1, 2021, Federal Law No. 218 of July 13, 2015 “On State Registration of Real Estate” came into force.

It sets the following:

• The time frame for registering real estate and ownership rights is being reduced.
• Land cadastral registration and registration of property rights are combined into a single database.

Now a complete package of documents is submitted to Rosreestr, and literally in a week you can receive a single extract from the Unified State Register of Real Estate.

But when checking at a bank, it takes more time, since you need to check the information on both the site and the house.
There are no problems in the following cases:

1. If permission to build a house has been obtained.
2. The site is not leased, but owned.
3. There is a boundary plan of the site.

Note! Although by law it is possible to convert land leased from the state into private ownership, banks do not approve such applications. This is due to the fact that there are no guarantees that the borrower will receive the property.

Banks also do not approve applications if the site is owned by different persons. This is due to great difficulties in implementing such an object.

Mortgage for a plot: lending conditions

In terms of rates, a mortgage on a land plot is not as attractive as classic housing loans - its cost varies from 13 to 17.5% per annum.

The down payment on the loan is 15-50% of the value of the land plot pledged under the mortgage agreement. When applying for a mortgage on a plot of land with a small down payment, banks usually require additional collateral for the loan - real estate collateral or a guarantee from individuals.

According to the terms of mortgage lending, the repayment period for a land loan in different banks ranges from 1 year to 5-7 or 25-30 years.

Requirements for the borrower

The main requirement for a loan applicant is solvency. If the loan amount is large, the income must be high, regular and stable. Banks can take into account more than just official current income. They consider career prospects and employer reputation.

Loans are most readily provided to persons who meet the following criteria:

• Age 25-45 years.
• Having a regular income.
• Official place of work.
• Availability of additional sources of income.
• Permanent registration at the place where the loan is provided.

If income is insufficient, family members may be considered as co-borrowers . But in this case, the property must be registered in the name of everyone indicated in the loan agreement.

Required documents

The future borrower can send documents to several banks. And after approval of the amount, choose the bank with the most suitable conditions.

The borrower must confirm with documents the following:

• Citizenship and permanent registration on the territory of the Russian Federation.
• Age from 21 to 75 years at the time of full repayment of the debt.
• Minimum experience in the last position is 6 months.
• Cumulative experience over the last 5 years is at least 1 year.

For this purpose the following documents are provided:

1. Passport.
2. A copy of the work book.
3. Certificate 2-NDFL for 1-2 years.
4. Employment contract or copy of the work record book.
5. Certificate in the bank form, certified by the employer.

Note! If it is planned to involve co-borrowers or guarantors in loan payments, they must provide the same package of documents.

Real estate documents are provided separately:

• Certificate of ownership or USRN extract.
• The document on the basis of which the property was acquired (sale and purchase agreement, gift, exchange, certificate of inheritance).
• Cadastral passport.
• A building permit if there is a house on the site.
• Certificate of payment of property and land taxes.

Registration procedure

After the documents are verified and the bank makes an assessment, the loan is approved.

The registration procedure includes the following steps:

1. A down payment of 10-30% of the property value is paid.
2. A loan agreement, a purchase and sale agreement, and a collateral agreement are concluded.
3. Loan funds are transferred to the buyer as payment for the property.
4. The borrower insures the property, life and health.
5. The property is registered in Rosreestr.

Note! When registering property, an encumbrance due to a mortgage is registered. This means that the copyright holder can use the property or rent it out. But he cannot sell or give it away. These actions become available by agreement with the bank or after full repayment of the loan.

Tips for applying for a mortgage on a plot of land with or without a house

If you are planning to purchase a plot using credit funds, use the following tips:

1. You do not need to ask the bank for permission to build or use the site in any other way, unless this condition is stipulated in the loan agreement. But you must take into account that in case of overdue debt, the bank has the right to all buildings erected on the site.
2. If the land has several owners, the bank establishes all of them as co-borrowers. This is due to the inability to mortgage part of the property.
3. The interest rate is calculated individually. The more guarantees you provide, the lower the interest rate on the loan.

Thus, you have the opportunity to purchase a plot with or without a house using mortgage funds. But at the same time, the bank must be interested in this property as a liquid asset that can be sold if the debt is not paid.

The video story will tell you about the nuances of applying for a mortgage on a country house

Specifics of a real estate pledge agreement

This type of mortgage is distinguished by a set of important features, including:

1. The borrower's right to construction. This is expressed in the fact that he can erect any buildings on the plot that is pledged, and there is no need to notify the lender for this.
2. The right of a financial institution to erect buildings on its land plot without the consent of the mortgagee.
3. If there are structures and buildings on the land that is leased as mortgage collateral, then the rights of creditors will apply to them too. But there is an important point here - the alienation of real estate located on land is carried out only with the consent of the pledge holder.
4. You need to understand that the liquidity of land plots is significantly lower than apartments, and for this reason the bank will insist that the interest on the loan be as high as possible.
5. Once the mortgage agreement is signed, the borrower has legal rights to the buildings erected on the site. This norm reflects the principle of land law, the essence of which is the unity of fate of the land plot and associated real estate. This principle is described in paragraph 5, paragraph 1, article 1 of the Land Code of the Russian Federation.
6. It is impossible to pledge only part of the land plot, since if a citizen acquires a share in shared or joint ownership, it can only be a guarantor of the mortgage after additional papers have been collected. The financial and credit institution will require the consent of all other owners of shares of the land plot.