When I speak of a lot, I’m referring to a subdivided piece of land that is zoned for a particular type of use.
Bare land loans can also be secured on large tracks of land that perhaps are agricultural today, but will be rezoned for other development in the future.
For one or more lots, financing can be acquired from a number of different sources, depending on the marketability of the lot and the financial profile of the borrower(s).
In general terms, financing can be secured from 40% to 75% of the market value of a given lot of land.
The variation in leverage amounts has everything do to with the extreme differences from one unique lot to another.
For instance, a lot in down town Toronto that is going to have a construction project start on it right away is going to attract a higher loan to value than a lot outside of a urban community where there isn’t much going on.
Also, the condition of the lot will contribute greatly to the potential loan to value you can secure.
For instance, is the lot fully serviced, partially serviced, or not serviced at all?
Is it zoned for immediate development of what is popular or typical in the local market, or will there need to be an application put in for a zoning change to make it more attractive to the resale market?
Banks and institutional lenders will provide lot financing, but like any bank loan, you have to have the credit and financial profile to qualify.
Private mortgage lenders are the most common source of land lot financing as their focus is primarily on equity in the property with a lower level of concern with credit scores and financial profiles.
That being said, a private lender will still want to know how you are going to be able to service the debt as well as how you plan to pay back a private mortgage that is advanced to you.
Some private lenders will take back an interest reserve from the approved mortgage amount to cover off the monthly interest costs for all or part of the loan term which can be an excellent solution for some one with a lot of equity in a site, but not a lot of current cash flow.
Lot loans and mortgages can be arranged from $20,000 up to several million, depending on the property, market, exit strategy, and equity position of the borrower.
If you require a lot loan or mortgage, I suggest that you give me a call so I can quickly go over your requirements and provide private mortgage financing options that meet your needs.
In this regard, there are basically three different classifications of bare land property.
There are serviced lots where all the essential services for a property are already on site.
There are the unserviced lots or partially services lots where services are near by and only need to be connected into the property.
And there are the unserviced lots where there are no near by services other than electricity and where property owners may need to have their own well and septic.
The more services that exist on a lot and/or the closer in proximity the property is to services it doesn’t yet possess, the higher the loan to value a lender will provide, and the greater the potential lender interest overall.
In general terms, bare land mortgages can be secured from 40% of the fair market value of the property to up to 75% for a fully services lot in an urban area.
Banks and other institutional lenders will finance bare land, but in most cases they will only do so if you are intending to develop the property further by adding a permanent structure.
If you are holding the land for short term speculation, or cannot meet the debt servicing requirements of a bank or institutional lender, then you can also secure financing from a private mortgage lender who will make a lending decision based more on the value of the property and their knowledge of the market.
The more remote the property and the less services available on or near the site, the less likely financing will be available. And for financing that is available, the rates and fees are likely going to be higher.
If you are trying to secure a bare land loan for a property acquisition or to arrange financing for a piece of bare land that you already own, then I recommend that you give me a call so I can quickly assess your requirements and provide relevant bare land mortgage financing options for your consideration.