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The dream of building your own home from scratch, brick by brick, is deeply rooted in Italian culture. It represents not just a financial investment, but a life project, a place to raise a family and cherish memories. The first step to turning this desire into reality is purchasing the land to build on: a plot. Often, however, the cash needed for this initial purchase is not readily available. This is where a mortgage for building land comes in, a specific financial solution that allows you to finance the first, crucial step toward your dream home. Navigating this path requires preparation, but with the right information, you can approach the process with confidence.
This guide is designed to help you understand how financing for building land works, explaining the differences from a traditional mortgage, the requirements banks have, and strategies for combining the tradition of the “Italian dream” with innovations in the real estate and financial markets. The goal is to provide clear and practical tools to tackle this important decision with awareness, turning a potential obstacle into a launchpad for your future.
A mortgage for the purchase of building land is a loan granted by lending institutions to those intending to buy a plot of land designated for the construction of a property. Unlike a classic mortgage for buying an existing home, this financial product has unique features related to the nature of the asset being financed. The bank, in fact, disburses a sum to purchase an asset—the land—that will only reach its full value once the planned building is completed. This makes it an operation perceived as riskier by financial institutions.
To be defined as buildable, a plot of land must be classified as such in the General Town Plan (Piano Regolatore Generale – PRG) of the local municipality. This urban planning document certifies that construction is possible, specifying parameters like the maximum buildable volume. It is essential to verify the zoning certificate before making any other move to ensure the land meets all the requirements for your project. Without this certainty, no bank will consider the loan application.
The main difference between a mortgage for building land and one for a home purchase lies in the collateral the bank can secure. With a traditional mortgage, the lending institution places a lien on an existing property, a tangible asset with a defined market value. In the case of land, the bank is financing the purchase of an asset whose value is lower than what the property will be worth once built. The lien is initially placed on the land itself.
This greater risk exposure for the bank often translates into stricter conditions for the applicant. For example, the amount granted rarely exceeds 50-60% of the land’s value, unlike home mortgages which can go up to 80%. Furthermore, banks are much more cautious, and not all institutions are willing to offer this type of financing, making the search more complex. Having an already approved construction project almost always becomes an indispensable requirement to start the application process.
To obtain a mortgage for building land, the bank carefully examines both the applicant and the project. The first step is to submit a series of documents that attest to the feasibility of the operation. In addition to the standard personal and income documents (pay stubs, tax returns), which demonstrate the borrower’s financial sustainability, specific documents related to the land and the project are required.
The essential documentation includes:
The bank also assesses whether the final value of the property, once built, will be higher than the total costs of the operation (land purchase + construction). This ensures that the investment is sound and that the mortgage collateral is adequate.
The bank also assesses whether the final value of the property, once built, will be higher than the total costs of the operation (land purchase + construction). This ensures that the investment is sound and that the mortgage collateral is adequate.
The bank also assesses whether the final value of the property, once built, will be higher than the total costs of the operation (land purchase + construction). This ensures that the investment is sound and that the mortgage collateral is adequate.
There are mainly two ways to finance the entire project: apply for two separate mortgages (one for the land and one for the construction) or opt for a single solution, the so-called mortgage for land purchase and construction. The latter is often the most practical, as it unifies the bureaucratic procedures. However, the method of capital disbursement is almost always the same and follows the formula of a construction loan with draws based on work progress (SAL).
A SAL mortgage does not involve disbursing the entire sum at once. The bank releases the funds in several draws as construction progresses. For example, a first portion may be disbursed for the land purchase, a subsequent one upon completion of the foundations, another for the completion of the load-bearing structure, and so on. Each disbursement is preceded by a technical inspection to verify the actual progress of the work. This mechanism protects both the bank, which limits its risk exposure, and the borrower, who only pays interest on the sums actually used.
Obtaining a mortgage for building land is a journey that requires method and patience. The first step, even before contacting the bank, is to ensure the land is indeed buildable and has no restrictions that could halt the work. Once you have the urban planning documentation and the project, you can start searching for a lending institution. It is advisable to compare different offers, as conditions can vary significantly.
The process continues with the formal application, attaching all the necessary documentation. The bank will then begin an underwriting process to evaluate the request. This phase includes a technical appraisal of the land to determine its value and an analysis of the construction project. If the outcome is positive, you will receive the loan approval and, finally, sign the notarial deed. The disbursement of funds, as mentioned, will occur in several phases according to the SAL mortgage, with periodic inspections to monitor the construction site.
The purchase of building land and the subsequent construction involve a series of costs that go well beyond the price of the land itself. It is essential to have a clear picture of all expenses to plan your budget correctly. The main costs include:
Having a precise idea of these items is crucial for defining the mortgage amount to request and the cash to provide upfront. For a complete view of the taxes, it may be useful to consult a guide to purchase and mortgage taxes.
Today, the dream of building one’s own home is increasingly intertwined with the demands of environmental sustainability. Green building and the construction of high-energy-efficiency properties are no longer a niche but a consolidated market trend. This focus on the environment can also translate into tangible financial advantages. More and more banks are offering so-called “green mortgages,” loans with favorable conditions for those who build or renovate with an ecological focus.
A green mortgage may offer a discount on the interest rate or other benefits for those who commit to building a home with a high energy rating (A or B). This not only reduces the cost of financing but also increases the property’s value over time and lowers utility bills. Combining the Mediterranean tradition of a “custom-made” home with the innovations of green building is a smart choice. It allows you to create a home that is not only beautiful and functional but also environmentally friendly and economically advantageous. For those undertaking a construction project, it is also wise to consider a specific insurance policy for the construction work.
Building your dream home starting from a plot of building land is an ambitious but achievable undertaking. A mortgage for building land, although more complex to obtain than a traditional loan, is the key tool to start this project. The key to success lies in careful and meticulous planning. It is essential to verify every bureaucratic aspect of the land, prepare a solid and detailed construction project, and approach the bank with all the necessary documentation. Understanding the differences from classic mortgages, the specific requirements, and how the construction loan with draws mechanism works allows you to negotiate with lending institutions from a position of greater strength and awareness.
In a market that is increasingly focused on sustainability, integrating innovative elements like green building into your project can open the door to more favorable financing conditions. Combining the solidity of Italian construction tradition with modern green technologies is not just an ethical choice, but also a smart strategy to enhance your investment. With the right preparation and a clear vision, the journey from purchasing the land to laying the first stone can become an exciting adventure, the first chapter in the story of your new home.
Technically, it is possible, but in practice, it is very difficult. Banks are reluctant to grant a loan solely for the purchase of land because the collateral offered (the lien on the land alone) is considered weak. Most lending institutions require the mortgage application to be linked to an already defined and approved construction project. The most common solution is the “land purchase and construction mortgage,” which finances the entire project in several phases.
The loan-to-value (LTV) ratio for a mortgage to purchase building land is generally lower than for an existing property. Typically, banks will not lend more than 50-60% of the appraised value of the land alone. This is because the risk for the lending institution is higher. The total loan amount, which also includes construction costs, rarely exceeds 80% of the estimated value of the property once completed.
Thanks to the construction loan with draws (SAL) formula, the risk is mitigated if work is interrupted. The loan is disbursed in draws, corresponding to completed work phases verified by an appraiser. If work stops, subsequent disbursements are halted. The borrower will only be required to repay the capital already disbursed up to that point, plus accrued interest. This system protects both the bank from excessive exposure and the customer from having to repay funds for work not performed.
The lien on the building land is the primary collateral required by the bank. However, since its value may not be sufficient to cover the entire loan amount (purchase + construction), the bank will also very carefully evaluate other guarantees. These include the applicant’s income stability and credit history. In some cases, especially if the applicant’s profile is not considered optimal, the bank may require additional guarantees, such as the signature of a guarantor (or co-signer).
Yes, it is technically possible to get a mortgage solely for the purchase of building land, but not all banks readily grant this type of loan. The main difficulty lies in the collateral: since a lien cannot be placed on a non-existent property, the bank protects itself by placing a lien directly on the land. Many lending institutions prefer to issue a single loan that covers both the land purchase and construction costs, often through a Work Progress Status (SAL) formula.
The fundamental guarantee is the mortgage lien, which is initially placed on the land itself. Once the construction reaches a certain value, the lien can be transferred to the property under construction. In addition to the lien, the bank carefully evaluates the applicant’s income and financial situation. A third-party guarantee (a guarantor or co-signer) may be required, committing to pay the installments in case of default by the primary borrower.
Generally, the percentage financed for the purchase of building land is lower than for an existing property. Banks tend to cover between 50% and 60% of the land’s appraised value. If the mortgage covers both the purchase and construction (SAL mortgage), the percentage can go up to 80% of the total operation’s value (land + construction cost), but the disbursement occurs in successive draws.
A land-only mortgage finances only the purchase of the plot of land. A Work Progress Status (SAL) mortgage, on the other hand, is a more complex loan that covers both the land purchase and the building construction costs. In the latter case, the sum is not disbursed all at once but in several draws. Each draw is released only after a bank appraiser has verified that the work has reached a specific stage of completion, as planned in the project.
To start the mortgage application process for building land, several documents are required. In addition to the applicant’s personal and income documents (ID, tax code, tax returns), documents related to the land and the project are crucial. These include the property’s deed of origin, the cadastral map, the zoning certificate (CDU), and, most importantly, the building project approved by the municipality with its corresponding building permit.