How do I use the deed as collateral to secure a construction loan?

A deed is simply a legal document that indicates that you have ownership of a land. If you own a piece of land and you have the deed to it, it is possible to use the land- aka use the deed as collateral- as collateral in order to secure a construction loan. This is, in fact, commonly done by people who buy land and then want to build a piece of property on it.

In order to use the deed as collateral, you will need to actually own the land free and clear or at least have equity in it. For example, if you own a piece of land valued at $100,000, and you don't owe any money on it, that piece of land can be $100,000 worth of collateral. However, if you own the land but owe $90,000 on it, you really only owe $10,000 on the land and it won't provide you with a full $100,000 in collateral.

Collateral for your construction loan essentially just means there is an asset guaranteeing the loan that is being given. The purpose is that if you foreclose on the property, the lender may take the collateral (in this case the land) and sell it in order to recoup their losses.

Getting construction loan financing can be especially tricky, since the bank or mortgage lender is lending you the money for something that hasn't been built yet, and thus they are going to lend you a lot of money for something with a speculative value. Owning land free and clear and using it as collateral is one way to help make the lender feel more secure, and thus more apt to lend you money.

If you are going to enter into such an arrangement, however, you need to have a lawyer look over all papers and documents before you sign in order to make sure your rights are protected.