AL and FL Mortgage News


Lot Loans / Vacant Land Loans Now Available

It is GREAT NEWS to report that for the first time in nearly 10 years we are seeing a resurgence in demand for new construction homes more specifically one time close construction to permanent loans.  For that same reason, we are starting to see increased market availability for loans on vacant land and lot loans.  To help get the word out to the consumer we want to explain what this means to you the end consumer and how this market change could benefit you.  We will limit our discussion of land and/or lots to be land that is typically 20 acres or less and address those above 20 acres to a future discussion.

Traditionally borrowing money on vacant land or a lot without “improvements” in a generic sense means that the land doesn’t have a permanent, existing, residential home located on the land as is.  While digging a world class bass pond, building a barn, carving/paving roads, or running power onto your land are great tangible benefits without a permanent dwelling the land is still considered to be “vacant” or “unimproved”. 

This is important because this classification in the lending world eliminates you from getting Conventional, FHA, VA and USDA financing for the land/lot as is.  For decades now if you wanted to buy or refinance vacant land or a lot you were forced to go to a community bank, credit union, or land bank which has at least a branch located in the county and/or adjacent county that the subject property is located.  This arrangement is still true to this day and will not likely but the best news is that we now offer options statewide in Florida and Alabama regardless of what county you are in.

What has not changed

All lot loan lenders will require between 20-25% down because of the risk involved, no exceptions.  While this sounds like substantial down payment, finding a builder, developer, or seller with excess inventory and well priced lots in the $40,000-$85,000 range is common in many areas in both Florida and Alabama.  In most cases the equity you have in the lot can be used towards down payment requirements on FHA and Conventional one time close loans.  Please note that this LTV (loan-to-value) threshold/restriction is typically the same no matter what the price and loan amount is.

Also because of this risk involved in case of default, all lenders will typically offer note rates that at a minimum 1.0% to 8.0% higher than prevailing conventional and government rates depending on your credit score, down payment, loan amount, and term requested. 

The biggest difference between the local credit union, community bank and other lenders in the marketplace is the 1) the rate associated with a given term and 2) other special features the loan has based on your scenario.  As a result probably the biggest mistake a consumer can make on land/lot loans is to call around asking what note rates, asking about closing costs, and stopping there. 

The biggest pitfall that many local banks and community lenders add to lot/land loans is a demand or balloon feature because they want their money back sooner than the term they are giving you.  For example, the bank gives you a 6.0% rate, 10 year amortization, and a 5 year balloon.  This can create a huge problem if you don’t pay it off before 5 years because while most of these same lenders will allow you to buy the land with their money, MOST do not allow you to refinance that note because they don’t have to.   In real life situations, this balloon means the consumer must magically come up with the cash and payoff the balloon with 5 years or more left on the note, build a home a wrap the existing land note into a new note via construction or construction-to-permanent loan, or sell.

Next to being sure if your lot loan has a balloon feature, a fourth good question you should ask should be about maximum terms with potential long term, worst case affordability in mind.  Most lenders, specifically your local community bank or credit union, will offer a 5 and 10 year term automatically when you borrower up to $100,000.  The most common I have seen in my 14 years of experience is a maximum 10 year amortization with a balloon due in 5 years. 

What has changed

The good news for you is that we are now offering loans for vacant land and lots for as little as $35,000 and in cases over $75,000 terms as high as 15 and 20 years with acceptable credit in all 67 counties of Alabama and all 67 counties of Florida moving forward.  Also we are offering these loans without a balloon option in most cases so if you want to buy and hold or build tomorrow we have more flexibility that may not be available in your county or region.   Our maximum lot loan limit is $500,000.

While we would be glad to discuss any scenario, and don’t imply any kind of offer within this post, we are happy to announce (with the property equity and acceptable credit) that we can also refinance lot and vacant land loans which is really great news for borrowers facing a fast approaching balloon date. 

You can always Apply Online 24 hours a day and a we can put you in touch with one of our loan officers who specializes in your area.   You can also call us at 888-269-8335  or email us with questions at

Gulf States Financial is an equal housing lender licensed in Florida and Alabama only.

Posted by Devin Murray on January 20th, 2017 2:51 PM



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