Lots with streets and utilities in place, ready for a building to be started.
A finished lot is the product of land development and the raw material of a home builder. The OCC handbook says finished lot loans and buildable lot loans are the same thing as land development loans for supervisory purposes. The supervisory loan-to-value limit is 75 percent, and it stays at 75 percent until construction of a permanent building begins.
When a loan covers many lots, the bank is repaid as they sell. Each sale pays a release price, usually set above the lot’s share of the loan so the bank is paid off before the last lot sells. The handbook’s example: 100 lots, a $1,500,000 loan, and a bank that wants to be repaid by the 80th sale. The release price is 125 percent of each lot’s $15,000 share, or $18,750.
In a builder’s borrowing base, the handbook notes, developed lots usually get a lower advance rate than completed homes, and the agreement often limits how long a vacant finished lot can stay in the base.
How it shows up in the data here
Bank call reports fold lot loans into construction and land balances held: lots for homes can sit in the 1-4 family construction line or the other construction and land line, and the file does not say which loans are lots. Lenders compared for this work are under residential development comps. The largest construction books are ranked at construction books. No lot counts, release prices or loan-level records are in the data.
Go further
- Residential development lenders: Lenders compared for lot and tract development.
- 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.
- 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
- Horizontal development: The work that turns raw land into buildable lots: grading, streets, sewer and water lines and utilities, before any building goes up.
- Lot takedown: A builder's purchase of finished lots from a developer in batches on a set schedule, in place of buying them all at once.
- A&D loan: One loan that pays to buy land and to develop it into finished lots.
- Absorption: The pace at which a market leases or sells available space, lots or homes over a set period.
- Spec home: A house built before any buyer has signed a contract for it, so the loan is repaid only when a buyer is found.
- Land loan: A loan to buy land that has not been developed, repaid from other income or from a later sale or development loan.
Sources
Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.