Depending on the property and development project, there can be considerable variability in land development mortgage financing in terms of the lenders interested in a given project, and the rates and terms you can hope to secure.
When financing land development costs, the first things the construction mortgage lender will consider is the current market value of the property, the activity level of the surrounding market for similar development, and the projected market value that can be expected once the proposed work is completed.
For a bare land property with nothing developed in its immediate vicinity, the loan to property value ratio is going to be lower than a similar bare land property that is surrounded by in process or completed commercial or residential construction projects.
For bank or institutional lenders, the property value has to be matched with a strong repayment assessment from outside sources as the property under development will not be able to cash flow monthly debt service requirements.
For private mortgage lenders, the focus is more on the before and after value of the land and expected time to market the property in the event of foreclosure.
For larger projects where completed work will be sold as one unit or many, pre sales of the end product can further add to the amount of land development financing that can be secured.
Also important to all commercial lenders will be the exit strategy that is planned to repay the development financing loan when the work is completed. In many cases, this could be done through a refinancing action that will provide incremental funds for the next stage of the project, through an equity injection potentially from new investors in the project, or through the sale of lots to other builders or developers that are looking to purchase prepared sites.
Because there can be considerable differences in what can be secured for land development financing from one source to another, your best approach would be to work with a construction mortgage broker that has access to both bank and private mortgage providers in your area. That way you will have all your options covered and can quickly focus on the most relevant mortgage lenders for your land development mortgage financing requirements.