# Land value only mortgage?



## moonlighting (Nov 21, 2013)

Hi - I want to buy a property, and the house on it is currently 100 years old. There is new wiring/electrical, upgraded plumbing, and newer heater and water tank in the house basement. The bank does not want to give me a conventional mortgage, saying that the house is too old, but that they will give a mortgage based on land value only. 

Would someone explain to me what this means? I'm not sure if I searched this right in Google, but I don't come up with anything on this. I am in Alberta, if that makes any difference to what "land only value mortgage" means.

Will I even be able to insure the house, or just it's contents?

Thanks!


----------



## CalgaryPotato (Mar 7, 2015)

moonlighting said:


> Hi - I want to buy a property, and the house on it is currently 100 years old. There is new wiring/electrical, upgraded plumbing, and newer heater and water tank in the house basement. The bank does not want to give me a conventional mortgage, saying that the house is too old, but that they will give a mortgage based on land value only.
> 
> Would someone explain to me what this means? I'm not sure if I searched this right in Google, but I don't come up with anything on this. I am in Alberta, if that makes any difference to what "land only value mortgage" means.
> 
> ...


That is an odd situation, your bank is basically saying the house is worthless. But given the upgrades, it doesn't sound to be the case at all. How much mortgage are they willing to give you based on the land value? If it's enough for you, I guess it doesn't matter, otherwise, talk to a different bank.

I don't think anything about the mortgage appraisal should affect your insurance. Given the electrical, furnace and plumbing being up to date, you should qualify just fine for regular insurance.


----------



## moonlighting (Nov 21, 2013)

CalgaryPotato said:


> That is an odd situation, your bank is basically saying the house is worthless. But given the upgrades, it doesn't sound to be the case at all. How much mortgage are they willing to give you based on the land value? If it's enough for you, I guess it doesn't matter, otherwise, talk to a different bank.
> 
> I don't think anything about the mortgage appraisal should affect your insurance. Given the electrical, furnace and plumbing being up to date, you should qualify just fine for regular insurance.


ATB was telling my husband that they don't give conventional mortgages anymore (don't know when they made that policy) on houses over 30 years old. I don't know why, and am slightly curious.

If it does not affect my insurance, that's a good thing. But what else should I know about this "land only value mortgage"?


----------



## nobleea (Oct 11, 2013)

moonlighting said:


> ATB was telling my husband that they don't give conventional mortgages anymore (don't know when they made that policy) on houses over 30 years old. I don't know why, and am slightly curious.
> 
> If it does not affect my insurance, that's a good thing. But what else should I know about this "land only value mortgage"?


I think the downside of a land mortgage is you have to come up with 50% DP.

We bought an older house (as a tear down) last year. The financed the house and lot but forced us to a 20yr ammortization due to the condition and age of the house. Appraiser didn't think it would make it to 25 or 30 yrs. We went through BMO, in Alberta.


----------



## moonlighting (Nov 21, 2013)

nobleea said:


> I think the downside of a land mortgage is you have to come up with 50% DP.
> 
> We bought an older house (as a tear down) last year. The financed the house and lot but forced us to a 20yr ammortization due to the condition and age of the house. Appraiser didn't think it would make it to 25 or 30 yrs. We went through BMO, in Alberta.


ATB is wanting 25% DP, which helps to bring our payments down a bit, which is a good thing for us in the long run, but they want (if I remember what my husband said before he dashed off to work) prime + 2 for a land value only, which I think is really not to our advantage at all, compared to a conventional mortgage which would be lower. The reason they give is that it is higher because just land is a riskier investment (which to me is not correct as the land is not contaminated (it is a hobby farm), has year-round road access (the snow will be plowed as it is on a school route) and is 15 minutes away from the city, and was sold really cheaply).

I am still not understanding this whole land value only designation in a mortgage though.


----------



## nobleea (Oct 11, 2013)

outside of most cities, land in Canada is actually quite plentiful, so the bank is correct in that it's a bit riskier. It wouldn't sell as fast as it would with a newer house on it, or if it was right in the city. If you can swing it, best way to buy land is with a HELOC and then run a construction mortgage on the new house.

The upside of a land value mortgage is you can tear down the house whenever you want. Our current tear down is mortgage house and lot together and the bank won't let us tear the house down and uninsure it until all the papers are signed on the construction mortgage. We've been ready to go for the past 2 months, but still waiting on the bank.


----------



## CalgaryPotato (Mar 7, 2015)

moonlighting said:


> ATB was telling my husband that they don't give conventional mortgages anymore (don't know when they made that policy) on houses over 30 years old. I don't know why, and am slightly curious.
> 
> If it does not affect my insurance, that's a good thing. But what else should I know about this "land only value mortgage"?


That is a very surprising policy if it's not just for certain area's. I'd be curious to see what percentage of properties in Alberta are over 30 years old... maybe 40-50%. 

My house is getting close to 60 years old and I don't see any reason why it won't be around in another 30+ years.


----------



## moonlighting (Nov 21, 2013)

CalgaryPotato said:


> That is a very surprising policy if it's not just for certain area's. I'd be curious to see what percentage of properties in Alberta are over 30 years old... maybe 40-50%.
> 
> My house is getting close to 60 years old and I don't see any reason why it won't be around in another 30+ years.


I already own a house clear title 1 hour out of town, and it is 73 years old. It's got a bit of a lean to the back, and has a telepost in the basement, but otherwise, nothing wrong with it, it's not about to collapse from what I've been told. So I'm not sure why banks or this bank doesn't want to mortgage houses over 30 years, as there are so many of them. I'm curious about that - is there something I don't know..........


----------



## londoncalling (Sep 17, 2011)

have you tried other financiers?


----------



## Rusty O'Toole (Feb 1, 2012)

The bank doesn't want to make the loan. Could be for reasons that have nothing to do with you. Suggest you apply elsewhere. A good mortgage broker can get you a better deal than you can yourself, in many cases, since they know so many lenders and know which ones your loan will appeal to and which ones won't touch it.


----------



## OhGreatGuru (May 24, 2009)

With the collapse of oil prices, it is not surprising that mortgage lenders are taking a cautious approach in Alberta. In terms of market value of the asset, there are likely to be many new houses going at fire-sale prices. How hard is it going to be for the mortgagor to sell a 100-year old house? 

Upgraded electrical, plumbing, and heating does not address all the potential problems/deficiencies with a 100 year old house. What is the condition of the foundation; tile drainage; structural integrity; energy efficiency of building envelope; etc.?


----------



## moonlighting (Nov 21, 2013)

OhGreatGuru said:


> With the collapse of oil prices, it is not surprising that mortgage lenders are taking a cautious approach in Alberta. In terms of market value of the asset, there are likely to be many new houses going at fire-sale prices. How hard is it going to be for the mortgagor to sell a 100-year old house?
> 
> Upgraded electrical, plumbing, and heating does not address all the potential problems/deficiencies with a 100 year old house. What is the condition of the foundation; tile drainage; structural integrity; energy efficiency of building envelope; etc.?


I'm supposing that might be true if the whole property were to be sold by the owner to me at market value - but if they are pricing a property at well below assessed value because they have another mortgage they need to pay and they need out yesterday.............then that is not true. If I buy this place for $200,000 (a residential acreage of 8.5 acres), having myself assessed the foundation, structural integrity, land, etc...... - and I know that the next acreage of similar size and house is selling for $300,000, then I don't think that is true. Also, if there are major employers in the area, 20 minutes down the road, who are hiring btw.........then I don't think that is true that in the event that the brilliant mortgagor should have to sell his house, he would have a problem. The house was on the market for 5 days, and had 3 offers..........not sure that's an indication of a problem property. I'm not sure what's up, but it sounds like the banks are not familiar with the area or something else if they turn their noses up at this one..........or maybe they know that there's a flipping poltergeist going from house to house terrorizing that particular neighbourhood, and therefore won't touch the property.......

Cautious approach? I'd call it something else. I had a banker tell me that he sent/paid an appraiser to find out whether the house was worth the purchase price of the entire property. I thought I had landed in the twilight zone. Yes, the house has to be worth that price, you see, the land is worth nothing - Oh, and they paid an appraiser for this - brilliant and wise money management.


----------



## moonlighting (Nov 21, 2013)

Oh, I found out why the banks won't lend for this one - there _*was*_ something I didn't know - it's zoned AG. They're paranoid we'll default, and they'll have a hard time foreclosing. All this nonsense re the house is over 30 years old............nothing but smoke. An incredibly priced property in a desirable area, Zero debt, 20% down, collateral and a good paying job mean nothing.

Private lenders? Loan sharks - they'd be happy to scoop up an extra $30 grand over the other lenders over the course of 2 years, and at the same time force us to hand over title to our house that is free and clear title, as well as the house they'd be mortgaging. No thanks. All they'll get from us is a carrot in both ears.

Mortgage brokers? Yep, gone through 4 of them, who all said they would have noooo problem getting us a loan. All the while a credit score of over 800 got butchered by the various *** who said they'd have no problem finding us a loan.


----------

