From what I understand, a mortgage is a loan secured by real estate. Thus under this definition you should also be able to buy land (secured by the land). Is this true? If it is how come there are stuff called land loans? Do they also technically count as mortgages? Also, this definition doesn't specify what you can do with the amount loaned out, can you buy whatever you want as long as you have some sort of real estate property as collateral (in terms of a technical sense, I'm not asking if this is practically possible)

3 Answers 3


If it is how come there are stuff called land loans?

Since mortgages on home are much more common, it's typically inferred that a "mortgage" means a loan on a house (or possibly on a multi-family structure or other type of building). The reason that "land loans" are specified may be because the conditions of such a mortgage are very different. With a home mortgage, there will be restrictions on what you can use the building for. i.e. can you rent it out or do you have to occupy it? Can you make renovations that materially impact the house's value without the bank's consent? What type of insurance must be carried?

With a land loan the restrictions are different (and probably simpler). What can you put on the land? What modifications to the land can you make? etc. So they are also technically mortgages but are less common and thus have more specific descriptions.

can you buy whatever you want as long as you have some sort of real estate property as collateral

The loan document should specify what the collateral for the loan is. So, for example, you couldn't take out a home mortage and use a boat as collateral. Now, if you had a paid-for house, you could take out a mortgage on the house and use the money to buy a boat, but the house would still be the collateral for the loan.


Often when you borrow money the lender requires you to pledge some asset that they can seize if you don't repay the loan. Naturally, the lender wants to make sure that you can't sell the asset without repaying them, so they want some sort of publicly available documentation that the asset is encumbered.

So, for example, when you take out a car loan, the lender gets a lien that's recorded along with the title documentation. If you try to sell the car, you can't give your buyer a clean title unless you pay off the loan.

When the asset is real estate, the documentation is the mortgage. The mortgage gets recorded in the registry of deeds. If you try to sell the property, the buyer (or the buyer's title insurance company, these days) will see that there's a mortgage, and, usually, insist that it be removed as part of the sale. In order to remove it, you have to pay the debt that it secures.

Most of us think of a mortgage as something that comes with buying a house, because that's where we encounter it. But it's not restricted to that. A mortgage documents a security interest in real estate. Full stop. You can't give good title to the real estate without clearing up the mortgage. It doesn't matter whether the real estate is unimproved land, land with a house and garage, land with a high-rise condominium, or a downtown office building. It's just real estate.

Now, that's the legal side of it. In practice, commercial lenders prefer lending on real estate with valuable improvements. That makes the real estate worth more, and often easier to sell. For someone who's looking for a place to live, far more buyers want land with a house, rather than raw land where they can build a house. So borrowing money against raw land is harder than borrowing money against land with improvements. That means that a lender, if they're willing to do it at all, will often require a higher rate of interest than they would on improved land. And that's where the term "land loan" comes in: it's a different market, but not a different legal structure.


Did some research and it turns out a land loan counts as a mortgage and no, mortgages aren't strictly for buying real estate only (an example of this would be home equity loans which count as mortgages)

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