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Saturday, June 27, 2009

Important Terms You Need to Know About Land Loans!

If you are thinking of taking a land loan for the first time in your life, you better get accustomed to the loan terminology, since you need be able to comprehend the lender's terms and conditions clearly.

Let's start with a "bridging loan", which is what you are getting when acquiring a temporary debt. For example, this loan would allow you to buy a new property, before selling off the old one. That's if you want to buy a new house but didn't want to waste money on renting a house until your old one is settled. This situation might also occur when you have a good property that can fetch more money than the debt you incur on the loan, but you haven't got the money to wait.

After that, we have a conveyance, which basically is a legal document used to transfer ownership of an unregistered land to a new owner. Disbursement is a widely used term in land loans, as it refers to the fees and charges of the attorneys and government officials that are paid in order to safeguard land loans.

A redemption charge is a fee collected as a pre payment or redemption penalty. This is one of those charges that everybody tries to evade. These charges are actually favorable to the lender, because if the loan is cleared early, it fetches less money to the lender; hence, lenders tend to collect such charges in advance.

The land registration, also known as the title of the land, is free and clear when the prospective owner has cleared all the pending loans on the property. A person who is cleared off his debt from land loans and is now the sole proprietor, or title owner of the property is called a freehold.

Closing, one of the most common terms in land loans and every loan for that matter, is equity. Equity is the value of the property that the debtor can claim at any point in that debt loan. In short, it is the market value of the real estate at a given point of time, minus the amount the person is still in debt.

For instance, let's assume we get a mortgagee for property valued at $300,000 with a $30,000 down payment and a $1500 monthly payment. Suppose, after 2 years the value of the house rises to $450,000. In this case we would be able to calculate the equity that we have by taking the total payments up to that point ($36,000) off from the total debt. That remaining $264,000 debt would then translate to a $176,000 worth of equity - If only everyone was that lucky within a 2 year period, right?


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