You've probably heard the saying, "Location, location, location." While that's definitely true when it comes to real estate, it's just as true when it comes to buying land.
There is quite a bit to think about when making a land purchase. It can be much different than buying a home.
In fact, there is more research needed when purchasing a piece of property to build a home vs. buying a resale. If you want to build your dream home, it's vital to find the right piece of property.
There are many areas of the country where bare land is in high demand, and development lots can come with restrictions on what can be built on them.
Don't fall victim to the temptation of buying land just because has a cheap price tag. Instead, take the time to consider whether or not the land is actually worth the money, cheap or not.
Like buying a home, you will want to avoid an impulse purchase you'll regret later on.
There are some important things to keep in mind when buying land, so that you wind up with a piece of property that you'll love.
For example, you may not realize how many square feet are in an acre. If you are visualizing a certain size plot of land, it will be essential to make sure it meets your expectations.
You also need to realize that a large parcel of land may seem great but if it is restricted by wetlands it may not be as valuable as you think.
Here are five tips for buying land the right way.
Square Away Your Financing Ahead of Time
Land Loan Financing
When you are buying land it is essential to know up front how you will be financing the purchase. If you are planning on buying and holding onto the land for a while, a land loan will be best. You can expect that finding lenders who provide land financing to be more challenging.
Most land lenders will also require larger down payments. You can expect to have to put down at least thirty percent of the land costs.
Construction Loan Financing
On the other hand, if you are going to be building right away a construction loan will be your best bet. With a home construction loan you will be able to finance the purchase of your land combined with the cost of building the house.
It will be done in one single loan. Understanding how a construction loan works will be key. Your mortgage lender will set you up with what is known as "draws." They will release funds to build the house in phases.
For example, once the land is cleared and your foundation is poured, the lender will send out an inspector to ensure this work has been completed. If everything looks satisfactory, the lender will release the funds necessary to pay the contractors for this work.
It will be prudent to get preapproved for a mortgage just like buying a home. Having your preapproval in hand will put you in better position when you find the land you love. You'll be able to present your bank letter to the seller or their real estate agent.
Find a Real Estate Agent Who Works With Land Sales
Depending on where you're located finding a good parcel of land or building lot can be a real challenge. It makes sense to hook up with a local real estate agent who knows the area well. Quite often land sales are done word of mouth.
There are fewer pieces of land listed in the multiple listing service(MLS) when compared to homes. Be prepared to be looking for a while before finding a parcel that truly suits your needs.
A land agent who is knowledgeable about the area they work in will be able to provide you with timely information about what's available on the market.
Investigate Restrictions, Easements and Conservation
Before buying land whether it is a large parcel or a single building lot it is imperative to perform due diligence. There are many things to research including whether there are any restrictions, easements, encumbrances, or conservation issues.
In many neighborhood developments, there may be restrictions on where you can build and the size of the house. There may be other kinds of restrictions such as the color you can paint your house or whether you can install a fence.
If there is a homeowners association there are bound to be rules that will need to be explored.
Skipping this step could cause you a lot of grief and suffering down the line.
When you are buying in a non-neighborhood setting it will be essential to find out if there are any restrictions for building due to wetlands or other conservation issues.
You'll also want to find out if the property is located in a flood plane which can be very expensive to insure. Lastly, you'll want to know about public or private services.
For example is there town sewer available or will you need to install a septic system? If a septic installation is necessary, you'll want to get a handle of the cost as it can vary tremendously.
It will be important to consult with a land engineer to get some idea of the installation expense.
Know Your Budget For The Land and House
Once you have a pre-approved bank letter, it's important to stick to your budget. Don't let yourself be swayed by too many beautiful properties that are outside of your budget.
You might know exactly what you're paying for the land but you likely won't know the cost to develop it.
It's easy to have cost overruns when buying land. You could encounter ledge, a high water table, wetlands problems, and a myriad of other costly issues.
The same can be said for building a house. It is very easy to go over your budget with new construction. With supply chain issues and a shortage of labor, its never been more true.
You are likely to find things along the way that you just can't live without. Expenses such as these can add up quickly.
Buying your own land and building a house on it can be a very exciting thought. You get to do things exactly the way you've visualized them.
However, it is essential never to never overlook the process of due diligence. It's easy to make mistakes when buying land.