How To Buy Land: Step-by-step Guide

how to buy land
Real Estate

Do you want to know how to buy land? Something is exciting about buying your plot of undeveloped land on which to build your dream house from the ground up. However, selecting the ideal parcel of land you want to buy to build your house can be more complex than expected for buyers. So, before you dig in and buy land, understand what’s involved! We’re here to help you understand the land-buying process and avoid traps.

Things To Consider Before You Buy a Land

Certain factors can influence whether a piece of land will meet your specific demands and the difficulty and cost of developing it. Keep the following factors in mind when you look for land to buy.

#1. Access to Utilities

  • Water. If there is no municipal water supply on the site, you may need to establish a well or other off-grid water system. Water trucking is another option, although it can be costly and inconvenient.
  • Sewer: If a municipal sewer connection is not accessible, a septic tank must be erected before any building.
  • Electricity: The local utility company will need to run an electric line to the project site if one does not already exist. Installing a solar-powered system is another possibility.
  • Internet access: Check whether there is cellular coverage and an internet connection on the site. You may need to change cellular service providers or run a fiber-optic internet line to the construction site.

#2. Access to the Road

Some isolated house constructions lack road access. If no public or private road leads to the land you intend, you may need to build one. This is frequently expensive. It will almost certainly need hiring an excavation contractor and an arborist or logging business to remove trees. If surrounding parcels landlock the lot, McGuire suggests applying for a right-of-way easement to access neighboring properties.

#3. Land Financing Options

Obtaining funding for vacant land is much more complicated than for established sites.

According to Eric Nerhood, owner of Premier Property Buyers, most lenders see undeveloped land as a riskier investment. They are more likely to give financing if you have urgent intentions to build a house with the land you intend to buy. In that situation, you could anticipate paying a down payment of 15 to 25 percent, or up to 50 percent without building blueprints.

Here are various ways to finance a land purchase:

  • Construction-to-permanent (CP) Loan: A CP loan, also known as a “combined construction loan,” allows the buyer to finance both the land acquisition and the home construction simultaneously. It is the most prevalent type of financing because it frequently requires a lesser down payment, has a lower interest rate, and is available from most lenders. Before qualifying for a CP loan, you will typically have to employ a licensed contractor and have building drawings made. The lender frequently specifies the maximum time you can wait before starting construction.
  • Lot financing: Lot loans enable you to finance land acquisition without making immediate preparations to build on it. Most lenders, according to Hedge, do not offer lot loans because they consider them riskier than building loans. Lot loans also have higher interest rates and need greater down payments.
  • Owner financing: The seller of some FSBO properties may offer to finance the transaction directly. The down payment required will vary depending on the seller, but they are often (though not always) cheaper than conventional financing. However, interest rates are typically higher.

There is also the no-financing option – pay cash. This also makes obtaining construction financing easier when you build, according to Hedge, because the equity in the land can serve as your down payment.

#4. Make an Offer

Once you’ve found a desirable property, you must make a written offer to the seller. If you’re dealing with a real estate agent, they’ll handle all the paperwork, including the Bid Offer form. If you aren’t working with a real estate agent, McGuire suggests meeting with a real estate attorney to help define contractual conditions and draft the relevant documentation.

An agent or attorney can also advise you on the criteria (contingencies) that must be completed before the sale is consummated. A contingency that sets the timeframe for conducting due diligence is frequently included. A duration of 30 to 90 days is typical.

#5. Due Diligence

A thorough property evaluation is required to ensure that the land is suited for your specific needs. Hedge and Bond recommend the following:

  • Obtain documentation from the seller. You should seek documentation relevant to the property’s covenants, conditions, and restrictions (CC&Rs). CC&Rs govern what you may and cannot do on the land and are often imposed by Homeowners Associations (HOAs). Specific CC&Rs may differ. They may impose restrictions on specific paint colors, house kinds, and sizes, or your ability to raise poultry or cattle in your yard.
  • Perform a title search. A title search examines the history of public records such as deeds, tax records, and other financial transactions. A title search confirms that the seller may legally transfer the property to you without any issues. Liens and easements are potential issues that a title search can reveal (the right for a third party to use the land).
Read Also: Chain Of Title: A Comprehensive Guide, Updated!!!
  • Check the zoning. The zoning designation of a parcel will determine what the land can be used for and what kind of structures can be built. It’s critical to check with the local Zoning and Planning Office to ensure the property is classified for residential use; if the land is zoned commercial, you may be unable to build a primary residence. “I see a lot of individuals buying land and then discovering they can’t build what they want because of zoning constraints,” Bond adds.
  • Conduct a soil test. Suppose you don’t have access to a municipal sewer line. In that case, you’ll need to conduct a percolation test to evaluate the water drainage rate through the soil before establishing a septic system. Another soil test assesses whether or not the earth can sustain a foundation and whether or not it contains lead and arsenic.

You can close the deal if no difficulties are uncovered during due diligence.

How to Buy Land and Build a House

After you’ve scoured the alternatives and discovered the land you want to call your own, a few things to consider before signing a sales agreement—especially if you plan to buy the land and build a house. The procedure of purchasing land is very similar to that of buying a house, although there are several differences to be aware of:

#1. Check the zoning regulations in your area.

Imagine buying land with visions of a large mansion, only to build that your plot is not designated for residential use. Save yourself the sorrow by first checking the zoning laws.

#2. Examine the CCRs.

Covenants, conditions, and restrictions are abbreviated as CCRs. These restrictions set by an HOA or local government may limit what you can do with your property. The land may be ideal for your flamingo farm, but if the CCRs prohibit pink bird farming for whatever reason, you’ll need to search elsewhere.

#3. Put together a team.

By the time you’re ready to consider building a house, you should have already worked with a fantastic real estate agent who has guided you up to that point. In addition, for the following phase of the project, hire an architect, a contractor or project manager, and a builder. You’ll need permissions for almost everything before you start building, so get your staff started on that.

#4. Make your funding arrangements.

We’re always supporters of paying with cash, and it’s essential when buying land. Because the lender considers land loans riskier, they often have higher interest rates, shorter loan terms, and more significant down payment requirements. So, while the bank will be stringent with your land loan, they will offer you ridiculous financing alternatives for your house. Say no and stick with a 15-year fixed-rate mortgage with at least 10-20% down. If you must finance your land and home, keep your monthly payment to no more than 25% of your take-home salary.

How To Find Land To Buy

Some of the most remarkable ways to find land to buy are as follows:

#1. Real Estate Websites

According to Trent Hedge, Atmos Builders’ chief of operations, most people begin their land search by perusing online real estate databases. Land for sale listings can be found on websites such as Zillow.com, Trulia.com, RedFin.com, Realtor.com, and other databases specializing in vacant land listings. The following are some of the largest and most popular specialist databases:

  • LandWatch.com;
  • Land.com;
  • LandSearch.com;
  • LandHub.com;
  • LandAndFarm.com.

These websites primarily feature selective listings from the Multiple Listing Service (MLS) that only licensed real estate agents can access. Still, they may also include for sale by owner (FSBO) listings.

The contact for MLS listings is usually a real estate agent representing the seller (also known as a seller’s agent). Seller’s agents are monetarily and ethically committed to representing the seller’s best interests. As a result, it is frequently advised to hire your agent (a buyer’s agent) to represent your interests.

#2. Real Estate Agents

Real estate brokers can be an excellent resource for finding land. Through their networks of industry specialists, such as land developers and contractors, they have access to every listing on the MLS (“on the market”) as well as properties not listed on the MLS (“off market” properties).

While real estate brokers may help with land purchases, those specializing in raw land are the best. Working with “…agents with an extensive history of land sales or experience in soil science, geology, or forestry,” says Christopher McGuire, a real estate broker, investor, and founder of Real Estate Exam Ninja.

If you can find one in your region, McGuire also recommends employing agents who have earned the Accredited Land Consultant (ALC) credential from the Realtors Land Institute (RLI). These agents have been educated to walk you through the appropriate due diligence and legal procedures associated with land purchases.

#3. Community Resources

Some FSBO properties can be found in classified advertising in local newspapers or internet sites like Craiglist and Facebook Marketplace. You can make direct touch with landowners. Find contact information for landowners on the County Assessor’s Office website’s Geographic Information Systems (GIS) map. Check out county tax deed auctions, where land is auctioned off at a steep discount if the owner fails to pay property taxes.

Conclusion

Buying land is not an easy task. It is critical to conduct research and consult with specialists and experts. This is done to guarantee that you are following local zoning regulations and real estate legislation. Complete all the appropriate steps, and you’ll be able to buy the land you need to build the house you’ve always desired.

How To Buy Land FAQs

Is it easy to buy a piece of land?

Purchasing land is not an easy task. It is critical to conduct research and consult with specialists and experts. This is done to guarantee that you are following local zoning regulations and real estate legislation. Complete all of the appropriate steps, and you’ll be able to buy the land you need to build the home you’ve always desired.

Does Bank give loan for buying land?

Banks provide loans for land buying when you need money to buy a plot or a piece of land. This loan is typically used for residential purposes in cities. However, some banks will allow you to use the loan amount to buy land in a rural location.

Is it cheaper to buy a house or build one?

It is less expensive to buy a house than to build one. On average, building a new home costs $34,000 more than buying an existing home.

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