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Refinancing land only

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allisonb
Visitor

Refinancing land only

We bought 20 acres of land several years ago. In the last few years, land has exploded out here and the value has gone up a ton. It currently appraises for $160,000. We owe $55,000 on it. The problem is, we are ready to build a house. Credit score is 741. We've talked to at least 15 banks and not one will give us a mortgage for a house and 20 acres. They'll do 10 acres and the house, and then do a separate land-only loan with the other 10, but that puts us with two loans and the total monthly notes would be too much. We've already got the blueprints, contractor bids, cash for closing, etc. We are seriously thinking of just refinancing the land for the full amount we can get, I think that'd be 75-80% of the appraised value, and taking that cash to build. If we did that, paid off the current mortgage on the land, we'd have enough to get the house built and finished. I'm wondering how difficult it is to refinance land this way.

Message 1 of 6
5 REPLIES 5
StartingOver10
Moderator Emerita

Re: Refinancing land only

Do you have Farm Bureau Bank where you are located? They usually do large parcels.  https://www.farmbureaubank.com/

 

 

One other thing to consider. If you have acceptable quotes for a construction loan where they will allow up to 10 acres where for the house site, why not divide your land into a small parcel that contains the house and X acres up to 10 ac and then own the balance of the land free & clear.

 

I am mentioning this possibility because the value of your land has increased tremendously and since you have a home that you can build for less than the appraised value of land alone, then you are only mortgaging a small portion of your land. This is prudent because in a worst case scenero if something should happen and you were unable to pay the mortgage the lender could only take the house and the land that is encumbered by the mortgage. The rest of the land would be yours. Talk to an attorney about your possibilities of doing this. It is called "asset protection" and the time to plan for asset protection is when everything is going good for you and there are no issues on the horizon.  Hopefully it would be a moot point, but it doesn't hurt to explore the possiblity.

Message 2 of 6
allisonb
Visitor

Re: Refinancing land only

We thought about that but aren't sure exactly how that would work. If we started a construction/permanant mortgage on just the house and only portion of the land, the first draw of the construction loan would go to paying off the land. If we broke the land up and only got this new loan on that smaller section of land, would they still pay the full amount owed ($55000) or would they only offer to pay a portion because we are only using a portion for this new loan?

Message 3 of 6
StartingOver10
Moderator Emerita

Re: Refinancing land only

That's why you need to talk to an attorney. I think you can arrange it so the entire land loan is paid off with the first draw but a good real estate attorney that knows asset protection will know the ins and outs so you can make an informed decision. You may only be able to break it up into two ten acre parcels or maybe a 5 ac parcel for the house and a 15 acre parcel owned outright. The math on the valuation has to work. Explore this avenue as I think it may be beneficial to you in the long run. Caution: don't let the bank make you cross collaterialize the F&C piece with your mortgage. That defeats the entire purpose.

Message 4 of 6
TurboFX
New Contributor

Re: Refinancing land only

The 160k appraisal is for the 20 acres of land? You can parcel the land but you will not get 160k for just 10 acres. I think the reason they want to do the house loan on 10 acres is because that is the max acreage they can do for a mortgage. You can check around to see if any other lender will do more, but I think 10 might be the max.
Message 5 of 6
allisonb
Visitor

Re: Refinancing land only

Yes, the 160 is for the 20 acres. We've talked to many banks and they all say 5-10 acres is the max they can do. I'm calling farm bureau and one other bank on Tuesday, but if they can't help, we'll try for refinancing the 20 acres alone and use the cash to build, if that's possible.

Message 6 of 6
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