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Buying Land? Here's What You Should Know

If your dream home doesn’t have nearby neighbors, you probably need to buy land, on which you’ll build a house. Once you’ve found the perfect patch, you’ll need to work on securing the land. Many experts recommend paying for it in cash if you can. A financial advisor can help you determine which assets to liquidate or otherwise arrange your financing.

What to Do Before You Purchase Land

Buying land can be fruitful for you if you’re wanting to build a house in the area but it can also be a good investment for the future, depending on where you buy. 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 farmland 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 Land and Farm, LandWatch and LandCentury. You can even find listings on 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 to see your options.

Those are just the on-market options, though. It’s often possible to buy plots of land that aren’t listed 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 mentioned earlier, experts often recommend purchasing land with cash. But if you don’t have enough savings to purchase the piece of land outright, you can get what’s called 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.

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. You will also likely need a construction loan in order to build your home or another project.

How Much Do You Need to Put Down on Land? 

Buying land by itself is very different from buying land with established real estate on it. The land is worth less because the value is typically driven up with other assets to account for the property that has its own value. This includes having a home or commercial building as well as if the land already has running water and electricity flowing into it. Everything that has a cost could hurt the overall value of the land itself.

When you’re getting a mortgage for just land you’ll have to put much more down as a deposit than you may be used to doing for a home. This is because there aren’t any assets that the mortgage company can use to protect their investment in lending you the money. The typical downpayment or deposit on land ranges from 20% to 50% down. It’s important to calculate all of the costs of a potential mortgage and make sure it aligns with your finances and plans for the land before moving forward.

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. You should also include 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. These include 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 regard 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.

Bottom Line

Buying a piece of land isn’t simple. It’s important to do your due diligence and check with specialists and experts. This is to ensure you’re complying with local zoning regulations and real estate laws. Complete all of the necessary steps and you can buy the land you need for the home you’ve always wanted.

Real Estate Tips

  • You may want to consult a financial advisor before making a major real estate investment. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • SmartAsset’s free mortgage calculator lets you estimate your monthly mortgage payment with taxes, fees and insurance.

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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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