Not every homebuyer wants to buy a pre-existing home. Whether you’re concerned with finding the right neighborhood or you worry about the problems you might inherit with a pre-owned home, buying land to build your ideal home can remedy these fears. But prepare for a process that differs from purchasing an existing property.
Find the Land You Want to Purchase
Finding the ideal plot of land to start the process of building a home is the most important step. It’s a good idea to start your search for open land online. There are various well-established websites that offer long lists of available land including realtor.com, Zillow, LandSearch or PropertyShark. Exploring the properties held by your state land bank is another starting point. Land banks commonly have thousands of plots of state-owned land for sale. The land may have been previously used for public purposes, been foreclosed on after private ownership or be completely undeveloped.
When you have found a plot that interests you and is within a realistic travel distance, it’s a good idea to explore the area and the neighborhood to decide if the land meets your expectations upon first glance and whether the area meets your needs.
The next step is to find a real estate agent who can walk you through the process.
Set a Budget
The average price of land per acre can vary by city, state or region. For example, California costs $24,834 per acre, on average, compared with New Mexico, which costs $5,776 per acre, according to LandSearch.
Be aware that purchasing vacant land and then funding the building of a home can cost significantly more than buying a pre-owned home, regardless of the state.
“I believe buying a pre-owned home is more affordable,” Denver-based Re/Max real estate agent Celeste Ballerino wrote in an email. “This allows buyers to move in immediately and take on remodeling projects as timing and budgets permits. Buyers currently have more leverage pricing wise with resale homes in our marketplace, versus building a new home from the ground up on vacant land.”
If the extra costs are not a concern, you will still need to consider the costs of paying for a land appraisal, land survey and the opinion of a general contractor.
[How Much Does a New Construction House Cost in 2023?]
Get a Loan
If your intention is to take out a loan on the land, it may be more difficult than you think. There are two primary options: a land loan and a construction loan.
If you plan to begin construction right after purchasing the land, a construction loan will most likely be the right decision for you. These loans are short term, high interest and will cover the cost of land, building materials, contractor labor and required permits.
If you are not ready to begin construction right away, a land loan is probably your best option. A land loan is used to finance land and can have a higher down payment and high interest rates because there is nothing on the land to use as collateral. It can be very difficult to secure a land loan because of the risk the lender is taking on. Land loans are typically secured by the property itself. So if you default, the lender may take ownership of the land in an attempt to recoup its losses — just as it would if you defaulted on a mortgage.
You can obtain a land or construction loan from a local credit union or community bank. Remember these loans get your house built, but in most cases you will also need to obtain a mortgage.
If you are not ready to begin construction right away, a land loan is probably your best option. A land loan is used to finance land and can have a higher down payment and high interest rates because there is nothing on the land to use as collateral.
Get a Land Appraisal and Survey
The primary purpose of a land appraisal is to give an accurate market value to the land in question. An appraiser will inspect the land for zoning, accessibility and other features, and compare the land to similar plots in the area to find the correct value.
“An experienced land appraiser should have off-market knowledge of sales and historical information to properly assess current land value,” notes Ballerino.
The purpose of a land survey is to determine the boundaries, size and shape of a plot of land, along with any physical features on the land. A land survey is extremely useful as it makes the buyer aware of issues regarding accessibility, especially if the plot of land happens to be landlocked by another owner. In addition, a survey can resolve boundary or easement disputes that may arise with neighbors.
Ballerino calls this a crucial step in a land purchase. “Surveyors can provide critical information regarding easements, encroachments and public utility locations in proximity to the subject property,” she says.
According to HomeAdvisor, a land survey can cost anywhere between $375 to $750 and a residential land appraisal will cost $200 to $600, with more rural and larger plots of land costing $1,000 to $3,000, depending on the acreage.
Check for Utilities
If the land listing brochure or online information doesn’t state whether or not there are available utilities, you should check with the local utility company to determine how far the utilities are from the piece of land you’re purchasing.
Re/Max real estate agents Erin Finley and Rachel Reed, based in Portland, Maine, noted in an email that, in their experience, approximately 50% of vacant land lots have utilities available.
If utilities are not already hooked up, it may cost a significant amount to have the construction done. According to New York-based land investment company Gokce Capital, the costs can vary depending on how far away the utility hookups are from your property. For power, it might cost thousands per mile to have the lines installed if you are a long distance from any power lines.
If your plot of land is not connected to your local municipal water system, you may need to have a well drilled. The average U.S. homeowner pays between $1,500 and $6,000 to drill a well, according to home improvement network and information company Angi.
You may also need to install a septic system or tank. A complete septic system — including a leach field (also called a drain field), tank and piping — costs $10,000 to $25,000, according to HomeAdvisor. Additionally, septic tanks cost $7,318 on average for large units designed for community systems.
All of these installments may require easements with your neighbors if access to the utilities will run through their property.
[How Much Does a Septic Tank or Septic System Cost in 2023?]
Get an Environmental Assessment
It is essential to have a professional assess the environmental quality of your land. There may be hazardous risks you are unaware of prior to purchasing your land.
There are two phases of an environmental assessment. The first phase allows an environmental engineer to inspect all physical and visible aspects of the land to check for contaminants. The second phase will be a more in depth inspection, likely involving analysis of water, soil and air samples.
Check the Zoning
You need to know that the land you are purchasing has been approved by the government to be used for building a single-family home. You can determine the zoning status of your property by contacting your local government.
If you believe you have found your ideal property, but find it is not zoned for single-family housing, you can apply to your local government for a variance. If approved, it will allow you to use the land in a way that is not normally allowed by the current zoning ordinance without changing the zoning laws.
You may also need to watch out for the local HOA regulations. As Ballerino notes, “In a master planned community where a buyer is selecting a lot, the HOAs will definitely play a role in what a builder or landowner is allowed to construct. The bylaws and rules and regulations usually govern your community’s overall aesthetic and structure type.”
Have a Homebuilder Review the Land
If you are looking to buy land to have a custom home built, it can be helpful to have a homebuilding contractor in mind and even inspect the land before you purchase it. This ensures that the type of home you want to have built is compatible with the land.
According to Empire Custom Builders, located in DeBary, Florida, there are pros and cons to hiring a contractor before you purchase a plot of land, or hiring one afterward. If you hire a custom homebuilder before you’ve purchased a plot of land, the builder may suggest other plots that are more cost effective or more suited for the type of home you want.
If you purchase a plot of land before you hire a homebuilder, the contractor can in many cases tailor the home to the unique aspects of the land you’ve purchased. This can cost significantly more, however.
“A general contractor should be involved up front to gain some cost analysis whether you are building a single-family home or embarking on a larger master-planned community project,” says Ballerino.
How Long Will it All Take?
According to Ballerino, the process of buying land and having a house built can vary depending on multiple factors, including the construction company’s capacity or a city’s permitting process. In her work in the Denver area, she has seen the process take as long as 3.5 years and as short as 12 months.
The process can also vary by state. Portland, Maine, agents Finley and Reed noted in their email that their local time frame is generally seven to 10 months.
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How to Buy Land to Build a House originally appeared on usnews.com
Update 08/18/23: This story was published at an earlier date and has been updated with new information.
