Can You Use One Loan to Buy Two Continuous Parcels?
If you want to purchase a single parcel of land, the process is fairly simple. There is a clearly-defined, well-understood system for purchasing a single piece of property. Whether that property is for personal use, development, or commercial gain, buying a single parcel of land is done every single day, and there are many lending organizations that can help.
But what if you want to purchase two continuous parcels that are connected together? Can you get one loan or do you need two loans, one for each parcel? What loan programs will provide solutions to this problem, and what are the requirements for those that do?
The Problem: Purchasing Two Continuous Parcels Connected Together
Let’s look at a typical example of this situation. It’s common for a buyer, often a developer or company but also homebuyers, to want to purchase two parcels that are connected. There may be a structure that runs across both parcels but is not a main dwelling unit; it might be an accessory dwelling unit.
What can you do? Can you purchase these two parcels with one loan?
Yes. But you’ll need to research available loan programs that allow for this transaction.
The Solution: Finding Loans for these Properties
Fannie Mae has the most detailed guidelines for purchasing multiple parcels, so it is often the best solution to this problem. To use a loan backed by Fannie Mae, the parcels must be conveyed in entirety. This basically means that the entirety of the parcel must be sold in the transaction; it can’t be divided up and sold as part of the transaction. For example, you couldn’t use a single loan to purchase the entirety of one parcel and half of the adjoining parcel, the entirety of both must to be sold.
The parcels involved must be connected to each other, unless they meet a specific exception: if they would be adjoined but there is a road running through them, it would qualify.
The parcels must also have the same zoning. So if one parcel is zoned for residential only, while the other is zoned for commercial use only, you cannot use a single mortgage to fund the purchase. If they are both zoned for only residential use, you can use a Fannie Mae loan to make the purchase.
Altogether, the entire purchase can only contain one dwelling. This means that if one parcel has a single family home, but the other does not, the purchase can be made with one loan. However, if both have single-family homes, Fannie Mae loans are not available for this purchase. Certain improvements and structures, such as garages, workshops, or sheds may be acceptable. An improvement that is built across both lines of the parcels is acceptable.
Most importantly, the mortgage must be a first-lien that covers both parcels together. If the Fannie Mae loan is secondary to any other loans, on either the first, second, or both parcels, the loan will not be approved.
The Department of Veteran’s Affairs (VA) offers many loan solutions for veterans and qualifying family members. If you qualify for VA benefits, you may be able to use their resources to purchase two continuous parcels at once. Unfortunately, the VA does not have posted guidelines on this option, so you will likely have to qualify using the VA’s typical requirements for a single parcel or property.
One of the main barriers here will be the VA’s loan limits. If you are using a single loan to purchase the two parcels, you will be limited to the loan amounts allowed by the VA, which are the same conforming loan limits from the Federal Housing Finance Agency. These limits are different for each county in the country. In San Diego County, for example, the loan limit is $649,750. While this is certainly a large amount, it may limit your options for using this program to purchase two continuous parcels.
How the FHA Approaches This Issue
To start, we need to understand the FHA’s definition and treatment of “excess and surplus land.” According to the FHA, “excess land” is simply land that is not needed for the existing improvement project. It does not serve or support the improvements in any way. The best use of the excess land may not be the same as the best use of the improved parcel, and excess land can be sold separately. “Surplus land” is defined slightly differently. Surplus land is land that is not currently needed to support the existing changes but cannot be separated from the property and sold off to a buyer. It does not have a best use that is independent from the rest of the land, and may or may not contribute to the overall value of the improved parcel.
The FHA will also require specific analysis and reporting. The appraiser must include the “highest and best use” in the report, which will be used to support the appraiser’s conclusion that excess land exists. The appraiser must also include surplus land in the valuation. If the appraised area contains multiple legally-conforming platted lots that are under one legal description and ownership, then the second vacant lot could be divided and sold or developed as a separate parcel, assuming the division will not result in a break from zoning regulations for the second vacant lot. The value of the second lot will be excluded from the final value brought by the appraisal. The appraiser will also need to provide a value for the hypothetical principle site and improvements.
Get the Right Advice on Purchasing Multiple Parcels
If you are considering an investment in two continuous parcels, contact the loan experts at San Diego Purchase Loans. We have a deep understanding of the mortgage and real estate industries, and we’ll do our best to help you get the right loan for your specific needs.
Whether you need a jumbo loan for a commercial property or a conforming loan for your own personal residence, you can count on our staff to help from start to finish!