Splitting One Lot into 2 Lots

I have a question about a lot that I currently have a house on. I am working on zoning for a flag lot to build a new house in the back. I was wondering how financing would work in such a scenario.

I don't want to refinance and don't plan to sell either home.
I have the one home for investment purposes and want to build a new home to live in.
What financing options are available? Jordan

Hi Jordan,

For those who don’t know what a “flag lot” is, a flag lot is a lot that has no direct street frontage. The lot is accessed by a driveway, usually down the side of another house.
Courtesy of Westminster Municipal Code

Homes on flag lots usually have a lower value than an equivalent home with curb frontage. The flag lot allows for higher density by splitting existing lots and getting lots in developments where curb frontage is not possible.

The disadvantage for the house on the curb is that anyone wanting access to flag lot has to pass by the edge of their house. In some cases the drive may be shared by easement. The disadvantage for the flag lot is that there is no curb appeal as there is no curb.

The advantage for the flag lot is that there should be minimal street noise (depending what is in the back yard) and the sales price should be a little lower than the same house on the curb.

There is no direct method to search out flag lots (or exclude them from) an RMLS (Regional Multiple Listing Service) search so analysis about them is tough.

Well Jordan, I suspect you have started to find out that splitting your lot (land) into two parcels is a bit involved.

1st of all, before you spent any money, do a preliminary check with your local building inspection department/zoning department and see if it is doable as far as they are concerned. (You may have already gotten this far)

If it is doable, what will they require from you in the form of paper work?

Most likely they will require a survey showing both a proposed drawing (plot plan) of the split as well as a legal description from a registered & licensed land surveyor.

But before you spend money on a survey you will want to check with the lender who has the mortgage (loan) on your house now.

I am assuming you have a mortgage on your house now as you said you did not want to refinance.

Your mortgage lender has secured their loan on the entire piece of land and you will have to get them to discharge their mortgage (lien) on the portion of the land that will become the “flag lot’.

Whether they will or not depends mainly on if there will be enough value left in the house & lot after the split to safely secure their loan.

They probably will require an appraisal to determine current value “as is” and “after” the split.

If you don’t get them to discharge their lien on the flag lot, you will have to pay off their mortgage and refinance the portion that has the existing house, leaving you with the flag lot “Free & Clear” to build upon.

The existing house will then be considered an “investment property” so you will have to find a lender who does investment loans as well construction loans for the new house.

You didn’t indicate whether or not you planned on being your own General Contractor on the new house, and since I don’t know what state you are in, your best bet in finding a lender is to try local community banks, credit unions, or mortgage brokers that are familiar with the local area and local real estate trends.

Unfortunately, the mortgage lending world has changed quite a bit over the last few years and loans are harder to find, not impossible to find, just harder.

You have an excellent idea!
Good luck,
Carl Heldmann, byoh.com