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How to Buy Land to Build a Home

CEO Khai Intela
Building your dream home from the ground up starts with purchasing a plot of land. It's an exciting prospect to own a piece of raw real estate where you can create the home of your...

Building your dream home from the ground up starts with purchasing a plot of land. It's an exciting prospect to own a piece of raw real estate where you can create the home of your dreams. However, buying land is not as simple as it seems. There are important factors to consider in order to ensure a successful purchase. In this article, we will cover everything you need to know about buying land, including where to find it, how much it costs, and how to finance your purchase.

Where to Find Land for Sale

The first step in buying land is to find available properties. Most real estate websites list land for sale, and platforms like realtor.com® even allow you to specifically filter for land listings. However, finding a piece of property that you love is just the beginning. It's crucial to ensure that the land meets your specific needs and requirements. Real estate agents who specialize in land deals can provide valuable assistance during this process.

The best real estate sites allow you to filter for land sales. The best real estate sites allow you to filter for land sales. (realtor.com)

Working with a real estate agent can help you negotiate a fair price for the land and provide insights into local zoning ordinances and potential building restrictions. Additionally, it is advisable to contact your local municipality to determine what you can legally build on the parcel of land. It's also important to check if the property has access to essential utilities such as electricity, water, and internet connectivity.

Before finalizing a purchase, there are a few other crucial details to consider:

  • Street access: Ensure that the property is accessible from a street or road. If it's landlocked, you may need to obtain an easement from a neighboring property owner to gain access.
  • Setbacks: Familiarize yourself with the setbacks, which determine how far from a property line you must build a structure. Setbacks can impact the size and design of your future home.
  • View ordinances: Local-view ordinances may impose restrictions on building height or home design. It's important to be aware of these restrictions to avoid future complications.

By thoroughly checking these aspects before purchasing land, you can avoid costly surprises and ensure that the property aligns with your intended plans.

How Much Does Land Cost?

The cost of land varies based on location, development status, and other factors. According to the U.S. Department of Agriculture's Land Values Summary, the average price for an acre of land is $3,100. However, it's essential to consider additional land development costs.

Preparing the land for construction involves clearing and grading, which can range from $1,281 to $4,705. Development costs may increase based on factors such as the topography of the land, accessibility, and the amount of debris that needs to be removed. Connecting utilities, wells, or septic systems can add an additional $20,000 or more to the overall cost.

Image of land development costs Land development costs can vary based on factors such as topography and accessibility.

To accurately estimate the total expenses, consult with a builder or real estate agent experienced in land purchases. They can provide insights into potential project costs and help you navigate any challenges that may arise.

How to Finance a Land Purchase

Financing a land purchase differs from financing a home. Not all lenders offer loans for land, and the type of loan you'll need depends on your specific circumstances. If you already have plans and a contractor selected to build your home, it may be more beneficial to apply for construction financing. This allows you to roll the cost of the land into a mortgage for the home construction.

There are a few types of land loans available:

  • Raw land loan: Suitable for undeveloped parcels that require a detailed development plan.
  • Unimproved land loan: Designed for partially developed land.
  • Improved land loan: Intended for land that is mostly developed with access to utilities and roads.

The qualification criteria for land loans are similar to traditional mortgages, including income and credit score. However, lenders typically perceive land loans as riskier, resulting in higher down payment requirements and interest rates. Down payments for land loans are typically around 20%, and interest rates can be up to 3% higher than standard mortgage rates.

Image of calculating finances It's important to calculate your finances before purchasing land to avoid any surprises.

It's crucial to budget for the down payment and consider the higher interest rates when planning your purchase. If you already have plans in place for your home and are ready to start construction, you may be eligible for construction loan financing, which often provides more favorable terms.

Whom to Consult Before Buying Land

Before finalizing any real estate purchase, it's wise to consult with experts in the field. Builders, land surveyors, and real estate agents can provide valuable insights and help evaluate the suitability of a lot for building a home. Their expertise can guide you in making informed decisions and understanding the costs involved.

Image of consulting experts Consulting with experts can help ensure a successful land purchase.

Additionally, consider hiring an attorney who specializes in local building laws and zoning ordinances. They can ensure that your building plans adhere to legal requirements, preventing costly delays or potential project roadblocks.

Buying land to build a home is an exciting journey. By following these guidelines, conducting thorough research, and seeking expert advice, you can navigate the process confidently and find the perfect plot to bring your dream home to life.