What type of loan to buy a vacant lot?

  • I’m looking to purchase the vacant lot next to my house but need advice on types of loans. Do banks even loan for vacant property? I have some cash but not enough to buy it outright.
    I’ve talked to the neighbor who is selling the lot and we’ve tentatively agreed on a purchase price of $50k. My income and credit should easily support this price, I just need advice how to best finance it.

    I currently have a mortgage on my home but I just recently purchased it and it is approximately at 80% LTV (based on an appraisal 5 years ago)
    I own a second home which my parents live in (they lost theirs to foreclosure so I purchased a home solely for them). This property has a mortgage of about $55k on it with an unknown value - last appraisal was done about 10 years ago. I’m guessing it might be valued around $150k now.
    Side note, I’ve been considering a $15k home improvement loan on my parent’s property to redo their floors but have no idea if I could finance that together?

    Welcome your questions and appreciate any advice you all might have. TIA!

  • You might want to talk with a loan broker about your options.
    It might be worthwhile refinancing your parents home to pull out enough money for the improvements and the vacant land.
    What is your current rate and duration for your parents place and what do you think you can get now (since it is a rental, it might be a higher rate then for your home)?

  • @bc Appreciate the reply!
    I have a call into our bank but no one from loans is available until the new year so I thought I’d reach out to you all for advice while I’m waiting on them.
    I have 3.8% on my parent’s house with about 20 years left on that loan.

  • @sarahb You are quite welcome.
    I’m refinancing my home as we speak (30 year, 2.75%) but suspect a rental refi will be higher.
    Just remember that a broker has access to multiple bank loans while your bank will only offer their loans.
    Good luck and let us know how it goes.

  • The cheapest way to do this would be to get a margin loan against existing assets at a brokerage. Current rates are under 2% APY

  • @sarahb What did your loan officer say when you asked them to refinance your parents place? If they won’t work with you then go to a loan broker who will have more options. If you can get your parents place refinanced, you should be able to buy the lot and have $15K for repairs.

  • @tedteddy Thanks, will definitely look into that!

    @bc We first talked to two banks, the one who holds the mortgage on my primary home and the bank who holds the mortgage on my parents’. Neither will float a second loan on a property that is not my primary property. To get a line on my primary property, I’d have to pay for an appraisal up front and hope they find it satisfactory enough to grant the equity line/second mortgage.

    After this frustration we went to our local credit union but their guidelines were even more strict and we walked out of there feeling defeated. Currently searching for recommendations for a broker who is willing to work with us. We have the income, we have the credit, just need to find someone willing to lend so I don’t have to shell out my cash.

  • I am not at all familiar with brokers, but wanted to throw out the idea of a Private Money Lender 💰 as a finance option… 🤔

    Some investors don’t want to tie up their money in an up and down stock market, and choose, instead, to invest their money in real estate: some offer short-term loans for fix-and-flips, while others offer long-term loans for purchases and/or rentals (buy-and-holds).

    In the case of vacant land that you may or may not be developing, a modest “down payment” and the fact that you would be living next door would likely be sufficient “skin in the game” for the lender when considering the loan and determining the overall risk (the likelihood for default on vacant land tends to be higher than on improved land, which is why banks don’t like lending on it)…

    Some private lenders also offer rehab (renovation) loans for fix-and-flips and rentals; some banks/mortgage companies offer Home Equity Lines of Credit (HELOC) to assist with renovations, as well.

    The way a HELOC works is similar to a credit card: the credit limit may be $15K or $20K, but you only pay interest on the money you’ve actually utilized. If you only spend $5K on flooring, that’s all you’ll pay interest on.

    To make your dollars stretch, you could purchase your flooring via CC, then, once the payment is due (after ca. 20 days…longer, if you make the purchase just after your monthly CC statement closes), pay off the CC with the HELOC, dropping your interest rate from 20%+ to less than 10% (I have no idea what the current rate is…it was in the 8% range last time I checked about five years ago or so…).

    If you hire a contractor to finish your floors, inquire as to whether s/he accepts credit card payments…or would be willing to allow you to charge the materials to your CC, thereby buying you a little extra time for taking advances from/making payments to the HELOC…

  • @kohlspowrshopper Thanks so much for your suggestion.
    We looked at HELOC but banks are not lending on my second home and my primary was recently purchased so I’m too close to the 80% LTV for them to loan 50k…

    Haven’t heard of Private Money Lenders but that’s certainly something to look into, thanks. Has anyone had a good experience with any particular private lending company?

  • Did you inquire about getting a small HELOC for the flooring replacement, or just for the land purchase?

    Perhaps a request for $10-$15K would be more palatable to the bank than $50K, especially if you merely stated that the funds would be used for a home improvement, without specifying which home… 🤔

    I’ve not worked with a private money lender before, but have seen good reviews about Connected Investors Exchange (link in my previous post).

    My understanding is that CIX utilizes a kind of crowd sourcing for loans: it has vetted a large pool of investors who want to finance new construction, purchases, and rehabs; I would imagine that there is likely someone in that pool who would be willing to fund a smaller project, such as repairs, rehabs, or vacant land purchases.

    My further understanding is that the investors loan on the asset (real estate), rather than on the borrower (income, credit history, etc.); should the borrower default, the lender simply forecloses on the property.

    Another source for a small loan would be local investors. Unless you are in a rural area, there is likely some form of Real Estate Investors organization nearby that you can ask about sources of funding for small projects (less than $150K).

    MeetUp is one source to check to see if there are any such organizations in your area. Scroll to the bottom of its homepage and click on Career & Business (bottom right corner); any REI organizations hosting upcoming events should pop up.

    If you sign up for a free membership, there is a way to search through all of the interest groups in your desired area (music, dance, language, cooking, wine, outdoors, pets, etc.) and perhaps find a way to contact the real estate group host directly, even if there are no upcoming events scheduled.

  • Thanks again to all for your suggestions. We ended up finding a little local bank who would give a second loan on our primary property. Borrowed enough for both the vacant lot purchase and to do the floors in my parent’s house. Bank paid all closing costs including a new appraisal. Only drawback now is they are 60-ish days out for closing.

  • Glad it worked out for you SarahB.


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