Some Tips for Buying Land to Build a New Home
Some Things to Consider Before You Head Out to the Country
Urban dwellers often idealize what it's like to live on acreage outside city limits, and there are indeed some advantages. Land costs drop in the country. The further away from the city you get, the cheaper acreage becomes. Many people buy land because they want to build a custom home to their own specifications. They also want cleaner air and more space.
But the realities of buying your piece of the country can cost you big time after closing. Obtaining a mortgage for your dream home might be tougher than you anticipated! Consider potential problems before you decide to dump urban living and buy land on which to build your dream home.
Wide open areas without trees shading the house are perfect settings in which to install solar panels, which is a concern for many environmentally concerned buyers who use green building materials.
The Drawbacks of Buying Land
Finding skilled craftsman who are willing to travel to your location might be difficult. Those who are willing will probably charge more to compensate for driving the distance. Transporting building materials and paying for delivery will likely cost more than if you built a home in the city as well.
Although modern conveniences are usually available, they aren't always reliable in the middle of nowhere. Many homeowners in the country keep generators as back up for times when utilities fail.
Going into town for groceries and other needs generally requires planning and long trips. And if it snows and the roads aren't promptly and properly plowed, you could be stuck at home for days.
Should You Rent Before Buying?
It might be a good idea to rent a home first before buying land and beginning construction, particularly if you're unfamiliar with the area. You can get to know the community and hear stories from local owners that you won't necessarily be privy to if you pull up in an SUV with a fat wallet in your pocket, asking about MLS listings.
Be aware of the pitfalls of this approach, however. All your neighbors might not be overjoyed to hear that you're going to buy up that land behind their homes and erect your own palace there, obstructing their pristine views. You might meet up with some resistance—even organized resistance involving municipal and county authorities.
Resale value is often softer in the country than the city. That's because the pool of potential buyers is smaller. If demand is low and supply is high, home prices will be more negotiable. As a tenant, you can try to time the real estate market and be ready to buy that parcel of land as soon as it becomes available.
Other Considerations: Zoning Requirements
Check with local authorities, including city, county, and state, to determine zoning ordinances. Find out whether you can build the type of home you want before you commit to buying the land. For example, a community within 20 minutes of Sacramento city limits doesn't permit construction of any structure on parcels smaller than 20 acres.
Ask about future zoning, whether there are plans to put in shopping centers or airports, or to change nearby land uses that could also devalue your land.
Smells and Sounds
Realize that you might be trading exhaust fumes from city buses for the lovely odors produced by pig farms. Some farm animals such as geese and donkeys produce squawks and brays that travel for miles. Horses along country roads drop steaming piles of waste. It's not like anybody carries along a plastic bag and picks up after their horses.
Obtain a natural hazard disclosure and look for soil problems. A disclosure will tell you if the land is a protected habitat, which would prohibit building. Is the area a known fire hazard? Is the fire department supported solely by volunteers? Many homeowners in the country maintain private ponds for fire emergencies.
If the land is located near hills, how likely is it to move? Some slab foundations can crack if the land is unstable. Find out if your parcel lies within the path of a potential landslide. You might want to consider building a raised foundation and make sure you have flood insurance if you construct near a body of water.
If the land was once a swamp, ask neighbors about the condition of their foundations.
Easements and Restrictions
Obtain an easement and make sure it's recorded if access to your land is provided by driving across an adjoining parcel. Find out who maintains the roads and what your pro rata cost share might be for upkeep.
What rights do neighbors have to cross your land? Are the boundaries clearly marked? Obtain title insurance. This will disclose easements and restrictive covenants or conditions. You might want to order a survey of the land as well.
Water is important, and not all water is potable. Sometimes water rights don't "run with the land," which would mean that you couldn't dig a well.
Find out the depth of your water table and determine the difficulty of digging. Is the ground mostly rock?
It can be costly to bring electricity, telephone, or cable service to the property if they're not already established nearby. Will you need to install a propane tank? What will it cost to install a septic system if you can't hook up to a sewer?
Consider a generator for back-up to keep food fresh during power outages.
Is a Structure Already There?
If so, you'll probably want to get rid of it, but proceed carefully. Depending on the size of the structure or building, you might need a professional demolition contractor to reduce it to rubble and haul the rubble off, and this can be a considerable added expense.
You might also need local permits for this type of work, and if utilities are available to your location, make absolutely sure they're turned off ahead of time. The contractor will most likely take care of this for you, but double check.
Get an Appraisal
If you're not planning to finance the land purchase through a conventional lender—which would require a lender appraisal—obtain your own appraisal to determine an appropriate price before making an offer. Comparable sales are sometimes difficult to find when you're buying land.
Getting a Loan
It's common to pay cash for land because getting a loan for this type of purchase can be tricky. Raw land can't be leveraged by a bank.
If you do get a loan—and there are a few lenders out there who specialize in and will touch this type of transaction—don't expect to be approved for more than maybe 50 percent of the purchase price. You might have more success if your land has utility access and is reasonably accessible by roadway.
Of course, a construction loan to build your home is something else entirely. In this case, the structure can act as collateral. Some financing will allow for subordination to a new construction loan.
At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.