Buying a Teardown in Florida: Financing the Lot Under an Old House
Buying a teardown Florida buyers pursue for the lot means financing land with a house on it, then a demolition, then a build. Lenders see three different projects. Structure it as one or plan for three closings.
Educational content only. This article is for informational purposes and does not constitute financial, legal, or lending advice. Loan programs, rates, and eligibility requirements change frequently. Consult a licensed mortgage professional before making any borrowing decision. Mortgage Capital | NMLS# 1859012 | Licensed in Florida.
Buying a teardown Florida buyers pursue for the lot underneath means financing land with an old house on it, then a demolition, then a new build.
Lenders see three separate projects. A construction-to-permanent loan can combine them; otherwise plan for more than one closing. Our construction loan page covers the build.
Why teardowns
Older homes on valuable lots in established neighbourhoods.
See our guide to impact fees in Florida for one cost that favours rebuilding on an existing lot.
The land is most of the value.
A new home on the lot is worth more than the old one plus the build cost, in the right block.
Coral Gables, Fort Lauderdale's east side and coastal Palm Beach see it constantly.
Financing the purchase
A standard mortgage on the existing home if it is habitable and insurable.
See our guide to four-point inspections in Florida.
A lot loan if the lender treats it as land.
Cash is common.
The lender's view depends on whether the house has value.
The insurance problem
An old home you intend to demolish may be uninsurable, and a mortgage requires insurance.
See our guide to Florida homeowners insurance cost.
A short-term policy or a vacant-property policy bridges.
Or buy with a lot loan that does not require dwelling coverage.
Tell the lender the plan.
Construction-to-permanent
One loan that funds the purchase, the demolition and the build, converting at completion.
See our guide to construction-to-permanent loans in Florida.
The appraisal is on the completed home.
The existing structure is valued as land or as a demolition cost.
The cleanest structure.
Three-loan route
Buy with a mortgage or lot loan, refinance into a construction loan, convert or refinance into permanent.
See our guide to buying land and building in Florida.
Florida doc stamps on each note.
See our guide to Florida doc stamps and intangible tax.
More cost, more flexibility on timing.
Demolition
A permit, utility disconnects, asbestos survey and abatement, and disposal.
See our guide to asbestos and your mortgage in Florida.
Costs run into the low five figures for a typical home.
Part of the construction budget.
Some counties credit prior impact fees for the replaced unit.
The 50 percent rule
In a flood zone, a teardown avoids the substantial improvement trap by starting fresh.
See our guide to the FEMA 50 percent rule in Florida.
The new home must be built to current elevation.
That is often why the old home is a teardown at all.
Renovating it would trigger the same requirement.
Zoning and setbacks
The new home must meet current zoning, which may be tighter than what the old home enjoyed.
Setbacks, height, lot coverage and floor area ratio.
See our guide to coastal construction rules in Florida for coastal parcels.
A survey and a zoning review before the offer.
The lot may not support the house you want.
Historic districts
Some Florida cities restrict demolition of contributing structures.
See our guide to historic home mortgages in Florida.
The Florida Division of Historical Resources lists designated districts.
A demolition permit may be denied.
Check the historic designation before buying for the lot.
It is the deal-breaker that surprises people.
Trees
Tree protection ordinances require permits and mitigation for removals.
Large oaks and protected species can dictate the footprint.
Survey the trees with the lot.
Mitigation fees add up.
Design around them.
Appraisal
Two views: the property as-is, and the completed new home.
See our guide to low appraisals in Florida.
Construction lenders use the completed value.
Purchase lenders use the as-is.
The gap between them is your equity at the end, or your cash at the start.
Total cost
Lot with house, demolition, design, permits, impact fees, construction, financing costs and contingency.
Compare to the finished home's value.
In the best neighbourhoods the math works; in others it does not.
See our guide to construction loan draw schedules in Florida.
Run it before the offer.
Living during the build
Twelve to twenty-four months of alternative housing.
Some owners live in the old home while permitting, then move.
Rent counts in the ratios if you carry a lease and a construction loan.
See our guide to maximum DTI in Florida.
Budget it.
Investors and spec builders
Teardown-and-build is a common South Florida investor model.
See our guide to spec home mortgages in Florida.
Hard money or bank construction financing.
See our guide to hard money versus private money in Florida.
Margins depend on the lot price.
Taxes
The lot is assessed as land after demolition, then as improved at completion.
See our guide to property tax estimates for new buyers in Florida.
Homestead resets to the new value.
Portability from a prior homestead may apply.
The first full year is expensive.
Where to start
Get a zoning and historic review of the lot before you offer.
Price the demolition and the build with a contractor.
Then start a conversation and we will structure a construction-to-permanent loan around the purchase.