- Private land bridge at 50 LTC for some scenarios
- Private horizontal bridge with production builder takeout
- Full doc land loans with banks for homebuilders
Testimonials
What is a Land Loan?
A land loan is a loan for vacant property that does not include a budget for vertical development. Banks offer full doc loans for homebuilders to acquire lots and land positions. We have private lenders that offer low LTC loans for vacant land for developers if the lender is bullish on the land value and development prospects, and the borrower has experience and assets. Private lenders will fund horizontal development for vacant land, with infrastructure construction drawings approved, to develop finished lots to build on later or sell finished lots to builders.
How to get qualified for a Land Loan?
New Construction Loan Calculator
Fix n flip loans and New construction loans are typically 12 month, 18 month, or 24 month balloon loans, interest only, where the borrower intends to repay the loan by either refinancing (taking out) the bridge loan with a permanent loan, or selling the property and repaying the loan at sale.
The “Rehab Holdback Use Factor” is a simplification to help estimate the total monthly interest payments. Our lenders typically don’t charge interest on undrawn amounts, so we’ve included this percentage to adjust for not using the entire rehab holdback amount from the beginning of the loan. Our lenders typically have no minimum term length. They get you on the up front points and fees and then the total interest paid is variable depending on how soon you draw the money and how many months until you pay it back, with no minimum interest.
How is a land development loan different from a new construction loan?
Land loans are used for land cost and horizontal development cost only, and not for vertical construction. New construction loans include the cost of vertical construction as part of the loan. Generally, lenders have more appetite for new construction loans than they do for land loans.
What is raw land?
Raw land is undeveloped land that is not ready for vertical construction. Raw land is missing either zoning / approvals / permits, platting / subdivision, or hard infrastructure such as roads and utilities, before houses can be built.
What is a finished lot?
A finished lot is a building lot that is ready for house construction drawings to be approved.
Can I get a loan to buy land or a lot to build later?
Potentially, but the loan would have to be for at least $200k, and lenders are maxed at 50-70 LTC for land purchases. A bank providing this loan would be going off your individual ability to pay them back even if you don’t sell or develop the land. A private lender would only entertain this at low loan-to-cost and with confidence they could sell the land to a 3rd party if needed. For most scenarios, it is easier to get a new construction loan that includes a budget for the vertical construction, and sometimes the new construction loans will cover part of your land cost.
Can I get a loan to buy a teardown that I intend to start building later?
Yes, teardown purchase or refi is easier to finance than a vacant lot. Just don’t start demolishing the house until after you have your new construction money in place.
Land Loan from Bank vs. Land Loan from Private Loan
| Private Land Bridge Loan | Private Subdivision Loan | Bank Loan for Land | |
|---|---|---|---|
| Loan Amount | $200k+ | $1mm+ | $200k+ |
| Full income and asset verification | Asset verification required, No income req | Asset verification required, No income req | 2 years income and full asset verification |
| Rates, Points and Fees | Private bridge rates | Private bridge rates | Bank floating rates |
| Loan-To-Cost | Up to 50 LTC including land, Up to 100 LTC with land owned outright scenario |
Up to 75 LTC including land, Up to 100 LTC with land owned outright scenario |
50-75 LTC including land, Up to 100 LTC with land owned outright scenario |
| Loan To Value | 50% of as complete value | 70% of as complete value | 70% of as complete value |
| Exit Strategy | Develop housing finished lots or housing later, or sell to a developer | Sell finished lots to production builder | Bank lots to build on later or sell to production builder |
All land scenarios are different. Some land scenarios cannot be financed. Nonbank Clearing is a land finance specialist and we want to help. All loans subject to credit approval.
Is it difficult to get a land loan?
It is more difficult to get a land loan than it is to get a fix n flip loan or a new construction loan. It is often easier to get a new construction loan that covers part of the land purchase price, than it is to get a land loan.
Why is it difficult to get a land loan?
It is difficult to get a land loan because land for residential development is naturally leveraged. Unless the land is a city parking lot or something, one has to build housing before the land property has any use value. Residual land value = home value – (land cost + land development cost + land developer markup). Lenders will lend against a house at 70-75% of the house’s value all day because if home values decrease 10-15%, the property is still worth more than the loan amount. If you plug in a 10-15% decrease in home values to the residual land value equation, it could mean the land value is down 50-100%. Phasing plans compound the effect. This can be a risky investment for a lender, even at low leverage. Also, a house can be rented to support monthly payments for a rental property loan, whereas for land, the interest payments and property taxes are paid out of pocket by the developer/borrower. A lender would have to be bullish on the land value, future prospects for other developers wanting to buy the land, and the borrower’s ability to pay. Even then, lenders need the borrower to have skin in the game, either by a landowner contributing land owned outright as equity, or borrower contributing cash towards the purchase price. Finally, smaller deals would not be worth the effort for a land loan lender, and loan minimums are typically $200k.
Land Loan Requirements
Most of the requirements for Land Loans are outlined in the graphic above. If you are getting your stuff together to apply for a Land Loan, please be ready to meet the following requirements:
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- Loan Application
- Scope of Work Breakdown for Rehab Budget (if applicable)
- Copies of infrastructure development plans (if applicable)
- Current approvals status and copies of any permits
- Real Estate Owned and Real Estate Investor Experience Form
- LLC documents including Operating Agreement (if applicable)
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- Title Policy meeting lender requirements
- Insurance Policy meeting lender requirements
- Purchase contract (if purchase)
- HUD1 from purchase (if purchased recently)
- Summary of work already completed since purchase (if applicable)
- Completed appraisal or desktop appraisal (ordered by lender, paid for by borrower)
- Private land bridge loan: recent bank statements and investment account statements.
- Private subdivision bridge loan: recent bank statements and investment account statements.
- Bank loan for land loan: full 2 years income and asset verification.
Nonbank Clearing Advantages
- Expert on land development and land finance
- Familiar with builder strategies and multiphase development
- Access to both bank and nonbank lenders
