California is one of the most popular destinations for people to live in. The warm weather all year round, the natural beauty and the wide range of opportunities are just some of the reasons that make the Golden State an attractive choice for newcomers.

However, despite these great advantages, California has a few downsides, one being its relatively high housing market. This means that buying a house in some of the state’s metropolitan cities such as Los Angeles can be costly, so homebuyers often obtain home or land mortgages to get their dream home.

While most rely on the expertise of any reliable mortgage broker Los Angeles has to offer to help them along the way, it is still important that people know what home and land mortgages entail and how they work.

To make things easier for you, we have come up with a brief guide that distinguishes between the two terms and elaborates on everything you need to know about them.

Purpose of mortgage

The type of mortgage you seek out will mainly depend on the type of purchase you are making.

For example, if you are planning to buy a standard home, then you will most likely get a home mortgage. These mortgages are reserved for purchasing properties that are already built or are under construction.

On the other hand, if you want to build a house from scratch on empty land, then you will need to apply for a land mortgage. This loan will mainly cover the cost of turning a raw piece of land into a plot for a home and it may also cover some of the construction costs of the property.

Interest rates

A home mortgage usually comes with a fixed or an adjustable interest rate which is paid every month along with a contribution to the principal loan amount. In a fixed-rate mortgage, the borrower will pay a fixed interest on the loan until it is paid off, while with an adjustable-rate mortgage, the interest rate may vary from one period to another.

As for the land mortgages, they carry more risk so lenders tend to charge higher interest rates. Other factors that can contribute to this include the type of land you purchase as well as your down payment and creditworthiness.

If you choose to get a land mortgage, make sure you compare multiple lenders before you settle on one.

Tax benefits

Mortgage payments include property taxes which are assessed by the government. These taxes are calculated yearly and are different for home and land mortgages.

With home mortgages, borrowers can avail of tax deductions on the principal repayment as well as payment of interest.

On the other hand, if you apply for a land mortgage, then you won’t get any tax benefits. The only time when tax deductions will be available with land loans is if you decide to construct your future home on the plot of land and the loan amount will be taken against construction. These tax benefits will be availed after the construction is completed.

Loan tenure

Another big difference between home and land mortgages is in their loan tenure. This refers to the repayment duration which a lender sanctions a loan. It is during this time that you need to repay the loan, alongside the principal payment and interest.

For example, for home mortgages, the tenure of the loan is much longer in comparison to land mortgages. With home loans, you have a maximum tenure of thirty years to pay the mortgage in full, whereas for land mortgages, the maximum tenure is up to fifteen years.

Final thoughts

Although purchasing a home in California can be expensive especially for new homebuyers, it isn’t impossible. Whether you are looking to buy a standard home in one of the state’s metropolitan cities or build a house in the LA suburbs from scratch, you can rely on home or land mortgages to get the finances you need to get the home of your dreams.

With the help of a reliable mortgage broker to assist you along the way, you will be well prepared and be able to make the right decisions during the process.

For more information, refer back to our post and learn about the difference between home and land mortgages.