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Buying Land? Here's What You Should Know

The dream home you and your family envision moving into might not exist. In that case, you have the option of buying land and then building a house. After you have an idea of what you want your new home to look like, you’ll need to work on securing the land that you want your house to stand on. Here’s what you need to know about buying land to build a house.

What to Do Before You Purchase Land

If you’ve decided to buy land, keep in mind that it’s not going to be a short-term project. Buying land is a major undertaking and to begin the process, you’ll need to figure out how much breathing room you’ll have in your budget for a new house.

Some of the costs you’ll have to account for include fees, permits, the cost of purchasing the land you need, the cost of building your house and the cost of making adjustments to the land in order to have access to running water and other utilities (if that’s not already in place for the land).

 

How to Find Land for Sale

A real estate agent can be a big help in facilitating your land search. However, you can also do it yourself. Checking the classified ads in newspapers, you can often find land owners attempting to sell their land independently. A specialty magazine or publication might highlight select pieces of land for individuals interested in buying farm land or hunting land.

There are also a great many online platforms where you can access commercial real estate listings. Specialty sites for finding land include LoopNet, Land and Farm and LandWatch. You can even find listings on more general sites like Craigslist.

If you’ve exhausted the above options and you still haven’t found your perfect plot, you could also look into whether the government is selling any land near you. This can occur if the government itself has excess land it wants to sell, or if the government repossessed land from someone else and is selling it off. You can check out realestatesales.gov to see your options.

Those are just the on-market options, though. It’s often possible to buy plots of land that aren’t openly for sale. Even if a plot of land isn’t “on the market,” the owner of the land may still be interested in finding a buyer if the price is right. Keep your ears open for situations like these. You may end up with land you didn’t even know was available.

Choosing the Right Land 

Buying Land? Here's What You Should Know

Confused about what to look for when buying land to build on? You’ll need to find an area where zoning laws won’t keep you from buying land for the investment property or home you want to build. Zoning rules set restrictions concerning things like the size of buildings and the kinds of businesses or residences that can be built.

It’s also a good idea to make sure that the land’s soil doesn’t prevent you from building, digging a well or getting electricity and natural gas. Will the land’s elevation be an obstacle? Are there any liens on the land or environmental problems that need solving? These are some of the questions you’ll need to answer before you can prepare to buy land.

While it’s possible to buy a house or a plot of land without the help of a real estate agent or broker, it can help to have someone on your side who specializes in working with vacant lots. A real estate professional can hold your hand through the entire process and help minimize hiccups. If you’re opposed to using an agent, it’s still smart to find a real estate attorney who can address your legal concerns.

One important step to take before finding a lender is to have the land surveyed by a professional. This involves hiring someone to look at how accessible the land is, figure out its dimensions and find out whether anyone already has the right to use the property.

Getting a Land Mortgage

As with buying a home, you’ll often need to finance your purchase rather than pay cash. If you’ve found a piece of land but you don’t have enough savings to purchase it outright, you may need to look into getting a land loan.

The kind of land loan you’ll need will depend on the type of land you’re interested in buying. There’s financing available for raw land as well as improved land that has already seen some development (by installing sewage lines, for example).

Raw land loans can be challenging to obtain. Developing raw land is expensive and difficult, so raw land loans are considered to be riskier than loans for improved land. You’ll often find these loans classified as commercial property loans. If you need one, you might have to make as much as a 50% down payment. Still, there are some lenders who let buyers put just 20% down.

Anyone who needs a raw land mortgage should be prepared to pay a high interest rate. In addition to looking at your credit and your background, your lender might want to see details about what you intend to do with the land. Your chances of getting approved for an improved property loan are significantly higher.

If you can’t obtain a land loan from a bank or other lender, you can see whether the owner of the land will offer you financial assistance. Or you can try to apply for a Section 502 direct loan, part of a program administered by the Department of Agriculture. It gives low-income individuals the option of buying land in a rural area and using it to build a house.

A land loan isn’t the only form of financing you’ll need. Your builders will likely need construction loans in order to build your home.

Making an Offer on a Plot of Land

Buying Land? Here's What You Should Know

Making an offer on land isn’t that different than making an offer on a home. When you’re ready to purchase a piece of land, you’ll have to make a written offer. You’ll approach the seller with the terms you’re willing to abide by along with all of the details related to the transaction.

After you make your initial offer, don’t forget that you can negotiate the land price down. It’s best to come prepared with research and data, though, to back up whatever price you’re willing to pay. You can even ask the seller to pay some of your closing costs and include contingencies such as a clause that states you can walk away from the deal if the land fails to pass inspection.

Completing Your Land Purchase Agreement

In order to claim a portion of land as your own, you’ll need to officially close on the land purchase. To do so, you’ll have to sign a land purchase agreement. This agreement will specify how much you’re paying for the land and how much money you’re putting down. The seller will have to sign the agreement as well.

The land contract you’ll sign will include everything that you and the seller agree to regarding the land purchase. Other documents you’ll have to review include state-based real estate forms, a closing statement that highlights all of the costs that stem from the sale and a deed that transfers the land’s title from the owner to you.

The Takeaway

Buying a piece of land isn’t easy. It’s important to do your due diligence and check with specialists and experts. This is to ensure you’re complying with local zoning guidelines and real estate laws. If you complete all of the necessary steps and make it to the closing table, you can buy the land you need for the home you’ve always wanted.

Before making such a big investment, you may also want to consider consulting a financial advisor. An advisor can help you understand how such a purchase fits into your overall financial plan and budget. SmartAsset’s financial advisor matching tool can help you find a local financial advisor. First you’ll answer a series of questions about your financial situation and your goals. Then the program will find up to three financial advisors in your area who can meet your needs.

Photo credit: ©iStock.com/cirano83, ©iStock.com/stevanovicigor, ©iStock.com/sturti

Amanda Dixon Amanda Dixon is a personal finance writer and editor with an expertise in taxes and banking. She studied journalism and sociology at the University of Georgia. Her work has been featured in Business Insider, AOL, Bankrate, The Huffington Post, Fox Business News, Mashable and CBS News. Born and raised in metro Atlanta, Amanda currently lives in Brooklyn.
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