Financing for an extra lot

7 Replies

We are currently in negotiations to buy a house and extra lot in Chicago. The sellers - for various reasons - need to have the house and extra lot as two separate contracts/sales. Our mortgage company has stated that because we are not going to build on the extra lot, they cannot finance the loan (nor would most other mortgage companies?!). At this point, the purchase of the house is dependent on the purchase of the extra lot and we need to close by the end of the August. The purchase price of the lot is $20k and we can put down $10k. Any suggestions for how to come up with the extra $10k? Worst case scenario, would could take the money from our credit cards, but would prefer something easier and/or with a lower apr rate. We have excellent credit (low 800s credit score) and will be putting down exactly 20% on the house, so there is very little wiggle room.

Hopefully other respondents have more experience, but I would suggest trying a local bank.

IMO, you got bad advice as you certainly can have one contract to purchase both the house and lot, together, at one price and simply use a letter of explanation that the lot is part of the yard. That will go in the secondary market.

The owner may have had both properties on one tax bill and such would be attached to your letter.

That said, we are where we are now.

Don't use your credit cards as any large use may cause your mortgage company to hold the loan with you qualifying again with the additional payment. Just prior to closing many lenders check balances just prior to closing.

1. Since you made this contingent, have the seller finance the lot through your attorney, and purchase as agreed at closing, a week later you can do what you want.

2. Get a 90% mortgage on the hosue and buy the lot.

3. Get a hard money lender for the difference needed after closing.

4. Do you have other assets that you can use for collateral for a seperate loan?

Again, any money borrowed prior to closing or set up to close may require you to re-qualify.

There may well be other ideas.....I need to go....

I'd also go back to that lender and ask for the reasoning if the deal is together and it appears on the same tax billing. You could also combine the two lots, if that is okay in your area, by the deed with two legal descriptions on one deed...(which would also be on the deed of trust.) Good luck....

@Bill Gulley , I don't think @Sarah Koning received advice to purchase them separately, I think the SELLER wants the two transactions to be separate, hence the problem with the mortgage company.

You'll probably have trouble getting hard money for the land,but I like Bill's advice about having the seller finance the lot. After all, they are the ones who are requiring you do two separate transactions, they ought to be able to help you out until you can get another solution.

If the seller can't/won't carry the $10,000 balance on the vacant lot, why not adjust the selling prices? Increase your contract price on the developed parcel by say $15,000 (increases your down payment by $3000) and pay $5000 for the adjacent lot.

Thanks everyone for your help! There are a few details I left out that may complicate the situation. The extra lot is owned by both a mother and son, while the house is only owned by the son. The son is planning a 1031 exchange on the house sale, so that is why there needs to be two separate contracts.

Sadly, we cannot adjust the prices between the lot and the house. The mortgage company appraised the house at $500 more than the selling price, so there is little room for negotiation.

We are young, PhD students, with very little extra money. The only other current assets we have are our Roth IRAs - which we have had less than 5 years - and we hesitate to use that.

At this point, I will need to look into seller financing. Otherwise, we have spent the evening crunching numbers, and we think we can come up with an additional 3-4k, maybe they will take pity on us?

Again, thanks to everyone who offered suggestions. After all of the advice I have received, my faith in humanity has been restored!

When I first saw your post, I was too busy to answer, but the idea I had was basically what @Bill Gulley gave you - have the seller finance the lot using "owner financing". And with @Ann Bellamy also concurring on that idea, it seems like the approach that gives the best outcome all around for all parties. The seller of the lot will just have to accept getting paid over time rather than in a single lump sum at closing.

The 1031 exchange rules are such that the seller is doing as they must to have their gains tax-deferred.

Good luck!

@Sarah Koning you have a TON of leverage here on this deal. How? Well easy, if you can't get the financing for the lot. NO ONE CAN! So the quickest and easiest solution is indeed seller financing.

One other crazy idea would be to instruct the owner of the home to "buyout" the mother from the LOT. Then you can combine the lot/home into one deal and that still should work for this 1031 Issues.

It might delay your close date, but again you have the power as if you can't get financed for a lot, no one else that is interested will be able to do it either.

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