How to Buy Residential Lots and Land

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Before you build a home, you need to buy a residential lot or land acreage to build on. Remember the adage of real estate when choosing the lot for your home: location, location, location. We've put together a list of essential things to consider before you buy a lot.

Service Considerations

Buying a vacant lot or land brings opportunities, but it also brings headaches and challenges you don't experience when you buy an established home. Here are things to consider when it comes to essential services:

  • Before you jump into buying land, find out if city or community water and sewer connections are available on the lot or land.
  • If sewer hookups are not available, make your offer to buy land contingent on the ability to install a septic system rated for the number of bedrooms you require.
  • Find out if other home-buying contract contingencies are advisable for land purchases. For instance, in some areas, water rights do not convey with land, and that means you could not dig a well.
  • Make sure electricity and phone service are available at the property. Check cable service if that is a priority.

Access and Building Considerations

Once you know you can obtain essential services, you might be ready to build. Before you start, here are a few considerations when it comes to land access and zoning:

If the land you wish to buy is not accessible by a public road, verify that a road maintenance agreement is in place. This document states that everyone on the road agrees to help with its upkeep. Also, there should be a deeded right-of-way in place for land not accessible by a public road. The deed should give you and future owners the legal right to access the land, known as an easement. Study the deed to discover if other persons or tracts of land have been granted easements to use your land in any way.

Be sure to check the property's deed restrictions to make sure the type of residence you plan to build is allowed. For instance, some areas do not allow manufactured housing. If the lot is in a planned development, ask for a copy of the restrictive covenants. That's where you'll find restrictions for maximum house size, whether other structures are allowed, and other limitations. You should ask the city or county if zoning changes are anticipated for the area or if there's a plan to build new roads or widen existing ones.

If there are environmental hazards on the land, such as old buried oil or gas tanks, decide if you are willing to remove them or if you will ask the seller to take care of removal and cleanup.

Decide if you want a new boundary survey. Surveys are standard in some areas but rarely required in others. They're nearly always a good idea.

Don't Be Afraid of Subdivisions

Don't be turned off by the terms "development" and "subdivision." If you're from a city, you might associate both words with small lots and side-by-side homes, but in rural areas, a subdivision lot might be 10+ acres in size.

Financing a Land Purchase

Not everyone has the cash on hand to buy land outright. If this is the case for you, you will need to find financing. One option is a land loan. With a land loan, the land serves as collateral. If something goes wrong, the lender can seize and sell the land and recover most of its investment.

Empty land is risky for lenders, though. After all, if money becomes tight, you're more likely to pay for your current home and other immediate expenses than an empty lot. To minimize risk, lenders may require a shorter loan term, a higher down payment (20% or more), and a good-to-excellent credit score.

You can finance land in other ways. You can apply for an unsecured personal loan, but those tend to come with higher interest rates and shorter terms. You could also apply for a home equity loan or line of credit, both of which use your home as collateral. The downside with those is that if something goes wrong, it puts your home at risk.

Selecting an Agent to Help You Buy a Residential Lot

It comes as a surprise to some home buyers that not every real estate agent is knowledgable about buying a residential lot or land. Land is a specialty practice. Don't make the mistake of believing any agent can help you buy land just because they have a real estate license.

From filling out the purchase contract correctly to negotiating specialty clauses to finding a construction lender, an agent with a fair number of residential land closings under their belt will be an invaluable resource over your typical resale agent. You deserve a land specialist.