HELP! Buying a property to sell off some of the land

[Kathryn Smith]

I am looking to buy a home with enough land to subdivide (create a flag lot). My intention is to keep the house and sell the extra land. I have already done my homework with the city and know that a flag lot will be approved. The only problem I am coming up against is that to sell the land, I'd have to have the lender release the lien on the new lot so that I could sell it, which I am told they are hesitant to do since that leaves them with collateral that is worth less than the loan on the property (This will be my first investment property. It is a conventional 5% down mortgage, and I will be occupying the property).

Does anyone have experience doing this? Buying a home with extra property and selling off some of the land? Any advice? Anyone had a lender that released the lien on the land you wanted to sell? Just looking for more insight into if this is possible before I close on this property.

[Caroline Gerardo]

With only five percent down you also have mortgage insurance of some kind. Your lender's risk is at 75 or 80 percent of the value you (called loan to value) are paying for the total including the "extra" land you want to spin off. To do a partial release you need to show the lender their risk will be the same after you split the parcel and take the proceeds. My guess is the only way to work around this is to have the proceeds pay the loan down to that 75 or 80 (LTV depends on MI you have if lender paid, borrower paid, or some combo monthly paid) .... Or wait until the value increases enough to give them the security of not making the loan more risky.

You will need to front the costs for engineering, plat map, going to a conditional use permit hearing maybe, having neighbors object, planning dept will have permit fees. It will take time, the number of months or years depends on the county and the neighbors.