Subdividing Land with a Mortgage already on property.

[Jeff Klonowski]

I'm in negotiations to purchase a SFR on large plot of land (approx. 2.3 acres). My plan is to purchase the property then demo the house and subdivide the parcel into 3 separate lots. I will invest capital to subdivide with the county, engineer the land and run sewer/water to the lots for resale and potentially keep 1 lot to build a future house.

I'm planning to purchase the SFR with a conventional mortgage, but my mortgage broker and underwriter are telling me this will create a lot of issues both legally and with the bank once I demolish the property and try to subdivide; since the mortgage is for the full property.

My question(s): 

• Has anyone dealt with this scenario in the past? Or can share some insider knowledge? 
• Are there alternative/better financing options for this plan? 

Thanks! 

Jeff 

[Tyler Mullen]

When you're ready to subdivide/redevelop you will get a new loan, commercial/construction type.  Look for a small/mid size local bank that specializes in this, they will detail what you need, survey, building permit, architectural plans and a builder contracted for starters.

Or when you're ready to subdivide/redevelop you just sell to a builder and have them split the lots and transfer title to you for your smaller lot, he keeps the others and let him mess with the utilities and building.  Or he pays you less (or maybe nothing) and builds you a house on your smaller lot.

How sure are you that this lot is able to be divided as you plan?  Don't just assume or take sellers word for it.