Will My Lender Allow Me to Split My Lot After I Purchase?
This is a question we frequently hear from borrowers who buy homes with large lots or who buy homes in areas where cities and counties are encouraging lot splits to foster the growth in housing units.
Borrowers can split lots, but they need to remember that their entire property/lot is encumbered by their mortgage.
Hence, they will need to get the permission of their lender/servicer before they can split and sell their lot – as the lender/servicer will have to release the lien (mortgage) against the portion of the lot that borrowers wish to split off and sell.
Borrowers will need to reach out to their loan servicer – or the entity that collects payments, monitors escrow accounts, manages amortization schedules, answers borrower questions, and harangues borrowers if their payments are late.
The servicer will ask the borrower to get an appraisal “subject to the lot split.” If the appraisal indicates that there will be sufficient equity in the property even after the lot is split, the servicer should authorize the split.
If the appraisal indicates that there will not be sufficient equity, the borrower will need to pay down the mortgage to meet the required equity level.
When borrowers purchase homes on large lots, they can often split off sections with minimal impact on value – particularly if they’re splitting off steeply sloped or less appealing aspects of their lot.
When borrowers are splitting smaller lots in urban areas, however, lot splits can significantly impact value – requiring significant mortgage paydowns.
I might finally add that this is often much easier said than done, as some servicers can be difficult to work with.
“Can I Buy 18 Investment Properties with One Loan?”
That was a question a borrower asked us this week, and our answer would have been “no” … until about a week ago.
That is because we now have an investor who will allow borrowers to cross-collateralize multiple properties to secure a single loan.
These loans are largely commercial in nature, and the underwriting is much easier (less stringent) than residential underwriting.
This is because the investor focuses on the properties and not on the borrowers.
The properties do NOT need to be in the same vicinity – and can even be across multiple states.
Here are a few other considerations:
- Minimum Loan: $500,000
- Minimum Number of Properties: 5
- Maximum Number of Properties: None!
- Minimum Value of Individual Property: $60,000
- Properties must be residential (1 to 4 units)
- Must close in LLC or corp.
- Max LTV is 80%
- Can accommodate cash-out refinances or purchase
