Here are some tips about buying vacant land.
Significant Increase in Vacant Lot Sales between 2020 & 2021
Frustrated by the lack of existing homes to buy, more and more consumers took matters into their own hands in 2021. One such exasperated buyer told The New York Times, “The market here was so skimpy that any time a decent property got listed, it would receive multiple offers right away and get snatched up.”
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A solution? Buy vacant land and build your own dream house.
According to Realtor.com, 79,289 vacant lots were sold in the 100 largest US metro areas between January and October 2021, an increase of +32.4% from that same time period in 2020.
Here are some things to know about buying land and building your own home as starter things-to-do:
Put Together Your Team
Your team of professionals may suggestively include:
- An experienced, local real estate agent to help you find a suitable property for your needs/preferences, put together an offer, negotiate with the seller and help you navigate the land-buying process, such as potentials for water and heating sources.
- An experienced, local general contractor with sterling local references to build your dream home within a budget you can afford – tricky currently due to severe labor shortages, material and supply shortages and fluctuating/significant price increases.
- An architect who can translate your dream house into a real, functioning home and who can both explain and translate custom design features and finishes into a detailed plan for a new dream home. (If the property you buy is in a development, the developer may require that you use the developer’s architect and builder.)
Getting a Mortgage
Unless you can buy the land and pay for the construction costs with cash, you’ll need to get a mortgage. Know that obtaining a loan/mortgage to buy land and build a new house is more difficult than getting a mortgage for an existing home.
Chances are you’ll apply for a short-term (12-18 months) construction loan to buy the land, get the building permits and build the home. Once the home is built, you’ll likely convert the short-term construction loan to a conventional mortgage. According to Guy Cecala, executive chair of Inside Mortgage Finance, your lender may offer a construction-to-permanent-loan that converts to a fixed-rate long-term mortgage so do your research here to know what’s available in your area.
Also know that some lenders give construction loans only to professional builders, not individuals…again, do your research…tougher underwriting standards on construction loans have higher risks to lenders. Construction loans require a minimum of 20%-30% on down payments and typically have at least +1% higher variable mortgage rates.
Zoning Laws, Regulations and Liens
Assume nothing. “Some land is only zoned for industrial, commercial or agriculture use,” said Michael Leigeber, founder and chief executive of LandSearch, even if there’s a house sitting on plot of land next to “yours.”
Hire a title company to check zoning laws, regulations and liens to ensure a legal claim of ownership for the lot and to double check any debts on the property plus any height/material/architectural style restrictions on the land.
Setting Up Utilities
Some properties, particularly properties in suburban/rural areas, may not provide access to public water, gas and electric sources. Making accommodations on the property to ensure those services and sources such as drilling, digging a well, buying and installing a septic /propane tank, connecting your property to a power line, etc. can be prohibitively expensive.
Also double-check internet speeds, particularly if/when you intend to work at home…yet other reasons to have an experienced, well-regarded, local real estate agent/broker on your team.
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Thanks to The New York Times.
