Starting with a large tract of bare land that someone wants to develop into small lots or a large commercial or industrial complex, the land financing that can be secured will typically be close to 50% of the purchase price or appraised value, whichever is lower.
As an example, if someone wanted to acquire a tract of agricultural land that was immediately adjacent to other real estate developments, the perceived value of the land would be viewed to be higher, depending on the probability of attaining proper zoning. So even though the loan to value may only be at 50%, the lender may agree to a higher future value for the land versus the value associated with its existing use, allowing for financing to be secured.
Both institutional and private lenders will provide land based construction loans, but because of the added qualifying requirements of traditional lenders, these loans tend to come more from privates who are also looking at the security as a potential investment property if they ended up taking the land back from the borrower in a default situation.
As the value of the property is improved through landscaping and infrastructure development, the market value will increase as well as the potential borrowing amount as a percentage of appraised value.
With development investment being made, a lender will start to consider financing requests of 60% of the property value or higher as there will be a larger resale market for the property if it needed to be sold.
Once land becomes divided into residential or commercial lots that have services running to them, the loan to value can go up to 75% to 80% of the appraised value for each lot.
The keys then to increasing the amount of your land acquisition loan directly relate to development investments made and zoning restrictions that are in place for use.
Because each project can very unique, there can be several different ways to structure land acquisition loans to meet the requirements of the borrower.
The best way to find out what types of land financing options are available to you for any particular southwestern Ontario project is to give me a call so that we can go through your situation and requirements together.