One loan that pays to buy land and to develop it into finished lots.
The OCC handbook says acquisition and development loans are often extended together, to finance both the purchase of land and its development. Add the building loan and the package is called ADC: acquisition, development and construction.
The supervisory loan-to-value limits step up by phase: 65 percent for raw land and 75 percent for land development. The interagency guidelines say that when one loan funds multiple phases of the same project, the limit is the one for the final phase the loan funds, but disbursements should not exceed actual development or construction outlays. The handbook gives the example of a bank advancing 65 percent for raw land and up to 75 percent as the land is converted into finished lots. It adds that it is still prudent for a bank to look at each phase separately.
Example: land that will be worth $2,000,000 as finished lots supports a loan of up to $1,500,000 at 75 percent, drawn as the work is paid for.
Repayment comes from lot sales or from a construction loan.
How it shows up in the data here
Bank call reports do not break out acquisition and development loans. They sit in construction and land balances held, mostly in the other construction and land line. Lenders compared for this work are under residential development comps, with state lists at construction lenders. There are no loan-level bank records, so no A&D loan amounts, lot counts or terms appear here.
Go further
- Residential development lenders: Lenders compared for lot and tract development.
- Loan-to-value and loan-to-cost calculator: Check a loan against land value and total cost.
- LTV and LTC calculator: Loan to value and loan to cost, the equity a lender will ask for, and the federal supervisory limit for the property type.
- Maximum loan calculator: The loan each test allows: DSCR, LTV and debt yield side by side, and which one binds.
- Residential development loan package checklist: Lots and houses are repaid one sale at a time. A lender on a subdivision or a group of homes is underwriting how fast those sales will come and what happens to the loan if they slow down.
- Supervisory loan to value limits and HVCRE, explained: Two federal rules shape how much a bank will lend against real estate: a table of loan to value ceilings, and a capital rule that makes some construction loans cost the bank more to hold.
Related terms
- Land loan: A loan to buy land that has not been developed, repaid from other income or from a later sale or development loan.
- Horizontal development: The work that turns raw land into buildable lots: grading, streets, sewer and water lines and utilities, before any building goes up.
- Finished lots: Lots with streets and utilities in place, ready for a building to be started.
- ADC loan: A loan to acquire land, develop it or build on it, repaid from the sale, lease-up or refinance of the finished project. Banks report these as construction, land development and other land loans.
- Entitlements: The government permissions a site needs before it can be built on, such as zoning, plan sign-offs and permits.
- Supervisory LTV limits: Loan-to-value ceilings in the federal real estate lending guidelines, from 65 percent for raw land to 85 percent for improved property, that a bank's own limits should not exceed.
Sources
Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.