Land/Lot Loans for Residential Construction
Land loans are designed as purchase money loans for borrowers who aren't ready to begin construction at this time, and as such are not ready to obtain a construction loan, but will be ready in the near future.
In most cases the lot must be normal for the area and at least one utility must be available from the street. (Septic tanks, propane tanks, are acceptable if these features are normal for the neighborhood.)
Very much like construction loans these loans are typically offered both as a Full Doc, Alternate Doc or even stated income versions.
Fully documented lot loans
These loans are normally structured as short terms of 1 to 5 year duration and are meant for buyers who are not quite ready to build yet, rather than those who want to invest in a lot for the long term
Loans offered include but are not limited to:
- 80% LTV/CLTV to a maximum loan amount of $500,000 for credit scores of 680, with 6 months PIT reserves and a maximum back-end debt ratio of 42%.
- 90% LTV/CLTV to a maximum loan amount of $300,000, for credit scores of 700, with 24 months PIT reserves and a maximum back-end ratio of 42%.
- 85% LTV/CLTV to a maximum loan amount of $300,000, for credit scores of 700, with 24 months PIT reserves and a maximum back-end debt ratio of 42%.
Reduced Documentation (stated Income, verified assets) lot loans
In the case of reduced documentation and stated income lot loans the loan to value ratios are normally reduced to minimize risk, and just like their fully documented versions are intended for short term financing of lots rather than investment.
Stated income lot loans are normally available in the following versions, though the limitations very depending on the lender:
- 75% LTV/CLTV to a maximum loan amount of $300,000, for credit scores of 680, with 6 months PIT reserves.
- 70% LTV/CLTV to a maximum loan amount of $500,000 for credit scores of 680+/- with 6 months PIT reserves and maximum back-end debt ratio of 42%.
- 85% LTV/CLTV to a maximum loan amount of $300,000. for credit scores of 700+ with 24 months PIT reserves and a maximum back-end debt ratio of 42%
Lot loan terms and amortization schedules
As mentioned before these loans are typically offered as a short term solutions for building in the near future, rather than long term investment in undeveloped lops, and as such have limited terms.
It is worth reiterating that these lot loans are not for large acreages of undeveloped land but rather for lots that are located in the vicinity of residential housing and either have utilities connected or easy access to utilities
For relatively small parcels the following are typical products offered:
- A 30/2 fixed rate loan. This is amortized over 30 years and all due and payable in two years.
- A 30/5 adjustable rate loan. This program is amortized over 30 years and all due and payable in five years.
- A 12 MAT product with a start rate that is fixed for the first 3 months and then adjusts monthly; and a 6 month LIBOR with a start rate that is fixed for the first 6 months and then adjusts every 6 months thereafter.
Large parcels; typically larger than 20 acres but limited to around 50 acres
If and when available in financial institutions in your area, larger than 50 acre lots can be financed subject to the following limitations:
- 20.01 – 30 – 75% LTV maximum
- 30.01 – 40- 70% LTV maximum
- 40.01 – 50 – 65% LTV maximum
Refinancing a lot loan
It is extremely difficult to refinance a lot loan through main stream financial institutions. As mentioned above, these loans are for short term financing for those who intend to build. Refinancing will enable the owner to treat the lot as an investment which lenders have no interest in.
Therefor it is very important to choose the term of the loan carefully, in order to avoid problems in the near future.
It is worth mentioning that if refinancing is an absolute must then hard money lenders are there to accommodate.