How to Buy Land for Building a Home

Buying vacant land and building your own home would not only expose you to how the real estate industry works, but also give you complete control over the home construction process including the type of house to build, the type of building materials to use and the landscaping features to incorporate. However, the process of identifying and acquiring the right piece of land may be difficult, especially if you lack industry expertise. So in this stripped down guide on how to buy land we will run through some of the main factors to consider when buying land for building a home.

how to buy land

First step is the most important

Check the owner
Check that the seller of the property really is the owner and has the right to sell it. Check that here: www.naco.org. Make sure to check the video at the bottom of this page to get tips on what to ask when you contact them.

Location
Location is vital because it influences other factors such as land value. In other words, serviced lots (land with utilities available at the lot line) tend to cost more compared to unserviced lots. Similarly, lots located close to social amenities such as shopping centers, hospitals and learning institutions also tend be more expensive than lots located far from such amenities. In spite of this, the value of undeveloped land tends to appreciate over time unless it undergoes natural or unnatural degradation such as severe soil erosion, soil contamination, or develops sinkholes. This essentially means you can buy vacant land, hold on to it for several years, and sell it at a profit.

Nearby Utilities
Be wary of terms such as “nearby utilities” or “utilities nearby.” In fact, before you buy a piece of land, you should visit the location to find out if you can easily access essential utilities such as water, sewerage services and electricity. It is worth noting that, in some parts of the US, utility service providers will extend access lines a certain distance at no cost. This means that, if your land is still outside this pre-designated range, you will have to foot the cost of extending utility lines the remaining distance. Alternatively, you can ignore the services offered by utility companies and build a self-sufficient off-grid property. However, this will increase your construction budget considerably because you will have to build or install sewer, water, and power systems on-site.

location

Feasibility Study
You should conduct a feasibility study before you start building your home. The study will not only help you design an accurate budget, but also protect you from unexpected increases in construction costs, including construction permit fees and utility hookup fees, in the future. Most land sellers allow potential buyers to carry out feasibility studies within a specified period. In spite of this, you should include a feasibility contingency in a land buying agreement giving you the right to cancel the same contract without paying penalties or facing legal challenges.

Survey
Have the piece of land you want to buy surveyed before you complete the transaction. The surveying process will ensure your property boundaries are properly marked, and more importantly, confirm your lot is not encroaching on road reserves or areas designated by local municipalities for construction of utility lines.

Environmental Site Assessment
Environmental site assessment is important for a number of reasons. Firstly, besides determining whether the soil is contaminated or not, soil tests would also help determine whether the land you want to buy would be able to support the weight of the buildings you intend to put up as well as other related infrastructure. Secondly, water tests would determine whether the underground water sources are clean or not.

Title
Find out if the property you want to buy has a title, that is free of encumbrances, liens, easements, or legally binding restrictions that would make it hard to develop. Luckily, some states maintain web-accessible databases that contain all land records. This includes mineral deeds, outstanding mortgages, oil and gas leases, and mineral appraisal records. If this information is not publicly available, hire an expert to help you access the relevant information. While at it, check for errors that could prove problematic in the future such as deeds that contain defective acknowledgments. In some states like Florida, such deeds could be cured over time if they do not contradict curative limitations statuses.

Zoning Restrictions

Zoning Restrictions and Building Codes
Almost all local governments across the US have zoning restrictions and building codes related to residential properties. As such, you should familiarize yourself with these laws before buying vacant land for building a home. Examples of such rules include the homeowner’s association (HOA) rules, restrictive covenants, historic district zoning regulations, and environmental laws that prevent constructions on land located on or near wetlands. Moreover, you should also consider vehicle-parking laws because some neighborhoods do not allow parking too close to the road. It is worth noting that HOAs have immense power and authority over new residential constructions. This is because they have the responsibility of managing, maintaining and taking care of common facilities and areas. For instance, HOAs determine the dues new property owners must pay periodically (annually, quarterly or monthly), land subdivisions, and even the number or type of pets you can have. With this in mind, go through local HOA covenants, building codes, restrictions, terms, easements, and conditions before purchasing land. At the same time, find out if the local government or municipal authority has a history of mismanagement, boardroom fights, ineffective leadership or legal wrangling.

Financing
Acquiring financing to purchase vacant land is generally harder than acquiring a mortgage to buy a developed property. This is because undeveloped land does not have collateral, such as a building, that a lender can use as loan collateral. As a result, the interest rate for lot and land loans is usually higher in comparison to mortgage loans. Additionally, most lending institutions that offer lot and land loans also ask for a larger down payment (up to 50%). This is because most mainstream lenders view such investments as more risky compared to financing homebuyers. As such, they try to minimize their exposure as much as possible. Fortunately, some mainstream lenders do offer land-buying mortgages. It is important to note that lot loans do not typically cover the cost of property construction. Therefore, you will have to finance the construction separately.

buy land

Conclusions on how to buy land
Some of the key factors and conditions you should consider carefully before buying land for building a home include location, accessibility of utilities, feasibility study results, land survey outcome, environmental site assessment results, zoning restrictions and building codes, as well as financing options.

If you do not want to deal with all the troubles of buying land to build on, you may want to consider a tiny house. Click here to read our article about Tiny Houses.

Mark Podolsky explains the 3 fatal mistakes often done by amateurs when then they buy land.

Now that you are informed, head over to our article on how to design your own home.