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Is Buying Land & Building Your New Home the Right Choice for You?

Therese Gesch Professional Headshot of Therese Gesch March 26, 2019

When it comes to buying raw land and developing it, REALTOR® Therese Gesch has seen it all. She has experience with everything from working with lenders on funding for land and building, to helping people through the permitting process and working with an architect to draft up plans.

For many people, the prospect of buying a piece of land and transforming it into the home of their dreams can sound like a grand adventure. And it can be! But there are several important (and sometimes challenging) things to consider before you dive into a project like this.

Below, Therese shares a few of the many considerations you’ll need to have along the way:

Financing

There are different ways to go about purchasing vacant land, and it is a good idea to make an appointment with a lender and see what is the best fit for your situation.

Land can be purchased outright if you have the cash funds, attain a land loan, or you can apply for a construction/land loan. Land loans are not very common and it’s more difficult to find a lender who offers this type of loan. Many properties are offered for sale with owner financing options, and this is due to the difficulty of getting a loan to buy vacant land.

A construction loan is a type of loan that is used to fund the construction of a new home on land you already own OR it can be used to both purchase land and build a home. If you own the land, you may be able to use the equity in the land for the home building loan.

Construction loans usually have higher fees, interest rates, and may have stricter requirements than traditional home financing. A lender will require the home is constructed by a licensed, bonded, and insured contractor. They want to ensure the home will be finished and that they will not be stuck with a liability. It will also need to be insured during construction for loss. Some lenders will allow for homeowners to act as their own contractor, but you’ll still need a project manager who is a licensed contractor to create the bid sheets, materials list, and oversee the work.

During the building process, the contractor usually will provide materials and labor for each phase of construction until an inspection is done by the permitting entity (usually the county) and the lender. Once passed, the lender will issue a draw on the loan toward work completed, and this process will continue until the house is finished. With each draw, interest only is paid toward the amount used. Once the home is finished it will need an inspection to occupy from the permitting entity.

At this point, the lender will convert the construction loan to a traditional mortgage, which is sometimes called a permanent loan.

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Now that you have an overview of the options to finance land, you need to decide where to find vacant land and how to know if it is buildable from a legal standpoint.

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Finding the Property

When you’re searching for land to build on, here are a few things to think about along the way:

  • Consider location and anything you would if you were purchasing an existing home.
  • Take into consideration state, federal, and health department regulations. There are many regulations to check into—wetlands, water quality, endangered species, any environmental issues, and sensitive lands areas. These can require hiring a specialist who will need to submit a report.
  • Is the lot buildable? Regulations for subdivisions, zoning ordinances, and building codes and permits will also determine if the land is buildable.

With a land purchase offer, typically 45 or more days are given for land to do a feasibility study to determine if it has any restrictions or needs special permits or further studies. This study may consist of a perk test to see if a septic system can be installed, and a well specialist to study if there are available water aquifers in the area to drill a well.

Preparing to Build

If the land is determined buildable, then it is time for the permit process, and every jurisdiction may have different requirements for obtaining a building permit. You will need your plot plan, building plans, water source, any water drainage control plan, septic as build or sewer plan, survey, proof of land ownership, and structural drawings, just to name a few of the plans you’ll need to be ready with. Permit fees can be costly; you will need to contact your local building department for costs.

Land clearing can also be costly. Trees, roots, and brush will need to be cleared and hauled away. Utilities will need to be installed and drainage systems may be installed to control potential runoff and erosion.

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Buying land and having a house built can be a great option to get just what you want, and it can also be a fantastic long-term investment. When you start the process, it’s of the utmost importance to keep in mind that not every real estate agent is experienced with land development and sales. Be sure you are working with an agent and brokerage that have knowledge of vacant land!

Do you have a question about buying vacant land and building? REALTOR® Therese Gesch is happy to answer any questions you might have! You can reach out to her online here or give her a call at (206) 550-9407.

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