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Financing a Short-Term Land Lease Condominium
Has anyone here ever purchased a condo with a land lease that was set to expire within 10-15 years? If so, were you able to use a lender for financing, and if yes, what type of loan did you get? I’m curious to hear about any experiences or challenges with securing financing in this situation. Thanks!
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2 Replies
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A land lease, also known as a ground lease, is a situation whereby you own a property (in this example, a condo) but lease the piece of land on which it is constructed from another party for a defined period. In the nonrenewal of leasing the ground, the boundary structure has to be a confirmation of the legal framework established in the axis control where the land lease was secured. Land rights usually revert to the lessor with the lease’s expiration. The prospects of owning the condominium become hazy.
Can I assume a lease for such a purchase as a condominium for a land lease period of 10 – 15 years to get a mortgage? In most situations like what you are talking about, the land lease is normally 99 years, not ten to fifteen years. These condos with an ending land lease are particularly hard to finance. Most lenders view this as a riskier undertaking. People still determine what will happen once the lease runs out. Some lending institutions will abandon credit for these properties. Others will be more stringent by, for example, wanting more equity than usual or shorter high-interest loans. I helped a family purchase a Chattel in Wyoming, and my husband Tom helped with the financing. It was a 30% down payment portfolio loan. Here are basic questions and answers that may help you.
What type of specialty loan is available for condominiums with a land lease that is or is about to expire?
Conventional loans are generally not keen on financing a dwelling with a land lease term of 10-15 years or less since it falls outside their risk factors. Some lenders may consider shorter loan terms other than conventional mortgages, in line with the remaining lease period (for instance, mortgages of 10 years on 10-year leases).
Portfolio loans are loans issued by banks and credit unions that do not sell the loans on the secondary market but take them inside the bank or credit union’s mainstream. There are no primary guidelines that govern the extension of these types of loans. As such, they may be more interested in financing condos with even shorter land leases than 30 years.
There are buyers out there who want to use cash instead of seeking financial help. This is because they need more financing options due to the short land lease term.
What issues make obtaining financing on a condo with a land lease difficult?
Limited Lender Options: Most conventional mortgage lenders wish for a land lease to be prolonged or continuous for 30 years and even more after the loan. Most lenders see this type of property as high risk. So they wouldn’t want to extend financing since only 10-15 years remain on the lease. If a lender agrees to fund the purchase, there may be an additional deposit—from 10% up to 25% or more due to increased risk.
Experts believe that lenders will offer loan terms that are at least equal to or shorter than the remaining years of the land lease. For example, if one borrower wanted a loan of 20 years and there were only 12 years remaining on the lease, one lender might give a 10-year loan.
Worry About Lease Renewable: Lenders know they will be at risk when the lease ends. The property—or perhaps the property plus many costs associated with securing the facility—can be lost to the buyer if the landowner does not enter a new lease, which further imposes risk on the lender.
What happens when the land lease expires? A number of things could or may not happen when the land lease expires, including certain rights and obligations set forth by the lease agreement.
Lease Renewal: The landowner can agree to extend the lease, but the conditions regarding costly lease payments or a lump sum to buy the lease out are likely not assessable.
Property Reversion: The title of the land (and the structures that may or may not be on that land) may be transferred back to the landowner, and in this way, the condominium owners will end up with no property rights over their properties.
Negotiation: Condo owners can negotiate with the landowner to extend the lease or outright purchase the land. However, this depends on the landowner’s willingness and the original lease terms.
What are the risks of buying a condo with an expiring land lease?
Loss of Ownership: A buyer should expect the risk of incurring this loss if the land lease is not renewed or the old resident chooses not to extend the existing land lease.
Decreased Property Value: Property value depreciation may occur where the lease end date is near, particularly rental units under a land leasing arrangement. Where The Condo and the land have an end date, a differential in possessions, monetary gains, and sales can be experienced. This can make it easier to dispose of the property later than anticipated.
For example, the Quote ‘Challenges Include Limited Financing Options’ might prove a stumbling block in obtaining a mortgage, as the chances of getting it might be likened to finding a needle in a haystack, making one’s plans to buy or re-mortgage in the future impossible.
For Example, Quote ‘Challenges Include Potentially Higher Costs’: There might be high costs associated with extending the lease or outright purchasing the land on which the condo is built, and these may outweigh the benefits associated with condo ownership.
Is it advisable to seek legal advice concerning acquiring a condo with a land lease? Yes, it is advisable to seek the services of a land lease real estate lawyer. They can assist with understanding the lease and its provisions, options for renewal, and associated risks. The attorney can also review the lease to check whether provision clauses would obstruct the future financing or selling of the property.
What should the seller know about the land lease before buying the condo?
For how many years is the land lease valid?
Is the lease renewable, and in the affirmative, what is the base lease term?
Has the condo association approached the landowner to extend or renegotiate the lease terms?
What happens when the lease runs out? Will the landowner take back the property, or can the land be bought?
Has the content of the limited lease changed within the period?
It is crucial to ask what procedures to follow to ensure no unwise investments are being made. Investigate the land lease terms and consult a real estate attorney.
Contact several lenders as soon as possible to determine whether financing is available for the business and on what terms.
Consider Resale Value: Understand that as the lease expiration date approaches, the value of the condo may drop further, making it more challenging to resell.
Budget for Potential Costs: Levy these expenses if there is a chance of the lease stretching out or acquiring the land within one financial plan if they hope to.
Is it advisable to buy a condo with a land lease expiration and not bother with getting a land lease extension? There is nothing wrong in offering cash at a time when one cannot secure any loan or land-lease properties, which normally forces people to have big down payments and short duration of repayments.
Grimmarket assessments also need to be done, such as the lease’s time expiration and the land’s depreciating value. Before following that course of cash purchase, consult a real estate lawyer and research the directions, which have quite some risks.
Buying a condo with a leasehold interest and a 10-15-year provision remaining also comes with a couple of challenges. They are mostly seeking funding. It is important to know the provisions of the land lease, have the lender understand it, and consult with a real estate attorney to assess the risks and possible expenses. Investment financing options may be limited, but a portfolio or short-term loan may be available if the lender is willing to work with you.
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You can finance a home that sits on a land lease but not a short term lease like 10 to 15 years. Needs to be 99 years.