Considering the market for existing homes is growing tighter, you may be looking to acquire land to build rather than buy for your next space. Making your dream a reality is possible, but understanding how to buy land and knowing what to look for when shopping for land can save you wasted time, heartache and even money.
You can find your land through any number of resources—from builders or developers selling improved lots to real estate listings advertising wooded acreage. You may find it online through websites or real estate agents specializing in land or during a conversation with a local who’s finally ready to sell their lower pasture to someone they know.
Since plain, unimproved land is a riskier investment, lenders usually require a layout of cash—anywhere from 20 percent or half to even the entire amount. Ideally, you can mortgage the land with a down payment until you’re ready to build. The interest rate for land loans is typically higher than it is for buying or building a home. However, when you get your construction loan, you usually can roll whatever you owe on the land into the mortgage for the house at the lower rate.
In some cases, you may be able to include the purchase of the land in your construction loan. Keep in mind, however, that most construction loans place time limits spanning initiation, completion and occupancy of the home. Any delays in surveys, testing, planning or permitting prior to or during construction can complicate scenarios and funding. This is why purchasing a lot that has already been improved can be more attractive to some buyers even though their choice in a building contractor may be limited or tied to the land purchase.
If you’re thinking of buying land and building or placing a home in a rural area, you may be able to purchase and even improve your land with little to no money down through the U.S. Department of Agriculture’s Rural Development Loan Program. USDA Single-Family Housing Loans offer financing to individuals unable to afford or qualify for conventional financing in rural areas. Both Single-Family Housing Direct and Guaranteed Loans can be used to buy and prepare land so that you can build or place a house there.
Especially if you’re planning on building a home, you need to be sure that the piece of land you’re considering will lend itself to the structure you want to build, the amenities you’ll need and the lifestyle you’re planning. Whether you’re considering rural acreage or a lot in a development, the factors to consider often begin with price but should extend to some key, practical issues that will ultimately govern what you will and will not be able to do with the property.
Rights of Way and Road Responsibilities: Will you need to file for an easement to have access to your land? Will you have to excavate or build the access? In addition, in some cases, you may be responsible for maintaining not only your driveway but also the road you live on.
Accessibility to Essential Amenities: Electricity, water, sewer and even internet access can vary considerably between rural areas and an already established development. How far will you have to run hookups, and how much will that cost? What is the quality of the water, and who is responsible for providing it? How much will improving your land cost, and how long will it take?
Zoning and Permits: Zoning and permits determine what you can and cannot do with the property and how you do it. Cities, townships or parishes often have their own rules governing types of residential areas versus commercial or agricultural zoning. You might need to obtain a variance for an alternative use of the land.
Homeowners’ Associations: HOAs typically have extensive rules governing everything from the architectural structures permitted to how often you’ll have to cut your grass or whether you can park a vehicle in front of your home. Review the HOA's covenants, conditions and restrictions—CC&Rs—carefully prior to buying land within their community.
Geography: Is the piece of land on a flood plain, adjacent to wetlands or near a stream? How difficult will digging a foundation be? Do slopes lend themselves to erosion or runoff? Will exposure and wind be an issue? Will you be able to situate your home the way you want? Where are major roads, facilities and farms in relation to your property?
Past Uses: If the land was used before, materials may remain in the ground. They may work their way up or they may form obstructions every time you want to dig. Remediating the ground can be expensive and difficult.
Property Taxes: Taxes vary widely. In rural areas, they may be less than $100 an acre annually while urban areas may tax land at more than $10,000 an acre per year.
Future Development: The lot may be currently surrounded by a peaceful forest, but it may not stay that way. Online plot and tax records can often show you surrounding properties, and county zoning and planning offices should have information regarding any upcoming major projects.
Learn more about key considerations in the 2021 housing market.
Looking for land can be a fun process, opening all kinds of possibilities. You just need to be sure that the home you envision building in the perfect spot will suit the land and the community where you find it. If you’d like to learn more about how to buy land, financing land or building a home, reach out to La Capitol Federal Credit Union’s home financing specialists. You can contact us online, call or stop by your local branch. We’re here to help you secure the financing you need to build the home you’ve always wanted.
CONTACT OUR HOME LENDING EXPERTS