Do you want the serenity of country acres, a piece of land to park your small house, or a buildable lot in the heart of the city? If properly planned, purchasing land can provide a more inexpensive road to homeownership than purchasing an existing home.
However, the process of purchasing property is distinct and sometimes more challenging than purchasing an existing home. Knowing how to purchase land will help you decide if it's the appropriate option for you. Before choosing a choice, consider the following questions.
What effect will the zoning regulations have on your long-term ambitions for the property?
Each parcel of property is categorized or classified for a certain use, be it residential, agricultural, or commercial. Local counties or municipalities create the zones and the restrictions for what is permitted within them. Typically, the department that maintains this information is known as the zoning, planning, or building department.
Zoning information is crucial for establishing if you can develop what you want on a piece of property. Each county and city will have unique regulations. Be careful to check the department's website first, as many municipalities and counties provide their zoning maps and property data online.
In addition to your individual plot, you should assess the surrounding region and any upcoming developments that might affect the property's value or your ability to enjoy it. This information can be found in the county or city's "general use plan." This describes the area's intentions for the next 5, 10, or 15 years.
For instance, assume you wish to construct a house on a tranquil property in a rural neighborhood. The planning document can inform you whether there are future plans for a landfill, power plant, business zone, or new road in the vicinity, which could impact your decision to reside there.
The personnel at the government offices tasked with zoning are well-versed in the specifics of the plans and can answer any queries you may have. No one expects you to be an expert, so if you need assistance comprehending the plans, seek out them.
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A deed is a legal document used to transfer property ownership. It contains a description of the property and any limits on what may be built or how the land can be used. Most frequently, deed restrictions are seen in communities administered by a homeowners organization (HOA). You must adhere to the limits in addition to any applicable zoning regulations.
The following are common deed limitations imposed by HOAs:
Request a copy of the HOA's Covenants, Conditions, and Limitations (CC&Rs) that detail the restrictions. Read it thoroughly. Consult a real estate attorney if you have any queries concerning the CC&Rs or if there is no HOA to acquire them from. Through a title search, a real estate attorney can aid in getting this information.
It may seem apparent, but there are a number of elements that might thwart your building ambitions on a piece of property. Contact your county or city's planning department for information on the parcel you're considering. Included among the issues to examine are:
Is the land susceptible to dangers like landslides?
Is the land located inside a flood zone? If so, the classification might necessitate the purchase of flood insurance, which can cost hundreds of dollars annually. Does the land contain any ecologically sensitive regions or wetlands?
What is the topography of the land? Flat lots are the cheapest to construct. If you must move a lot of earth and trees to make a construction pad, it will be more expensive to construct.
How near may one build to the property line? Local governments establish construction limitations known as setbacks on land, which restrict where you may build. A setback creates a type of buffer zone. It specifies the minimum distance between the proposed residence and a curb, property boundary, or other building. The setbacks that contribute to safety, beauty, and privacy vary by area. Consider the property setbacks while assessing if there is sufficient construction space for your home in the desired location.
Is the soil appropriate for construction? A basic soil test or geotechnical study can evaluate the soil's load-bearing capacity. This information is crucial for determining if the soil is solid enough to sustain a foundation. It may be necessary prior to obtaining a building permit for the land.
If you want to cultivate the property or suspect pollution, a soil test can also offer this information. And if you live in a rural location without sewer hookups, a percolation or perc test can determine if the soil is suitable for a septic system.
If you want to make an offer, you should consider including conditions that will allow you time to determine if you can utilize the land as intended. Among the most frequent occurrences:
Having contingencies might allow you to walk away from a property without losing your deposit if the land's restrictions clash with your intentions.
How will you reach the location? If it is on a major public route, you will likely encounter no issues. Frequently, especially in rural regions, the only access to a piece of land is via the property of another individual. Your property is considered landlocked if it lacks a so-called "easement."
Ensure a right-of-way easement, which is effectively a passage right, is given in writing before you agree to purchase the land. Otherwise, you will not be able to reach it via land, which might reduce its utility and worth.
Checking the property's plat map might be a quick method for locating easement information. The county or city clerk or recorder's office will have a copy of the plat map, which also depicts the property's borders and dimensions. However, plat maps and documented easements can be perplexing and difficult to comprehend; thus, it is highly suggested to consult with an attorney or other expert in this field.
If there is no existing road leading to the property, the cost of constructing one must be factored into the purchase price.
In bigger master-planned communities, the developer often provides services such as water, sewage, natural gas, and electricity to the lots.
However, purchasers in remote locations may have to go to additional efforts to connect to utilities. This may need drilling a well, establishing a septic system, or excavating trenches to connect power or water. All initiatives are going to be expensive. Off-grid solutions can offer new choices for electricity, water, and trash disposal, but their cost and practicality must be evaluated.
Internet connectivity might potentially be a serious concern for persons who want fast speeds or dependable access for work-from-home circumstances. There are a growing variety of alternatives, such as accessing the internet through cellphone service providers. Nevertheless, a residential connection to a reputable provider typically provides the most dependable service.
Before you sign a purchase agreement, obtain quotes or estimates for any necessary work, or have your real estate agent make your agreement contingent on your approval of the bids or other due diligence inquiry.
Not all lenders provide loans for unoccupied property, so it may be difficult to secure financing for your acquisition.
When selling raw property, which is land without any amenities, sewage, or roadways, the owners may provide seller financing. Try local banks or credit unions if not.
People can purchase undeveloped property without the purpose of constructing it. Lenders of raw land develop their own requirements and LTV guidelines, which determine the degree of risk they are ready to accept on a given loan. Loans with a greater risk often have a higher interest rate.
However, there are a few factors to bear in mind if you intend to construct the property you purchase.
If you want to purchase land and subsequently build a home on it or purchase a modular/manufactured home, you need first assess if you are eligible for construction-to-permanent financing. As the property nears completion, you can begin looking for a conventional mortgage to refinance your construction loan.
When qualifying for a loan in this manner, you must evaluate the expenditures associated with developing the land. The expenditures can include tree removal, grading, drainage, and the creation of an access road, as well as the installation of utilities and the construction of a building. Obtain quotes or estimates for any necessary work prior to applying for financing, so you will know how much you need and what form of financing to pursue.
If you want to live in an RV or a compact house on a piece of property that already has utilities, financing is likely to be uncomplicated. To qualify for a construction-to-permanent (CP) or combined construction loan to finance the acquisition of land and the construction of a house, you may be needed to have building drawings in hand if you are expecting to build.
If you pay cash for the property, you may be able to use the land's equity as a down payment on a construction loan to build on it in the future.
As you can see, the process of purchasing land is comparable to that of purchasing an existing home but involves an additional degree of care to ensure that you're purchasing the correct acreage for your goals. Finding a trusted lender or adviser who can guide you through the complexities of the financing process for the unoccupied property is crucial, especially if numerous loan products are required to reach your objectives.
If you're just beginning to investigate the land acquisition and are not yet prepared to hire an expert, crowdsource information. Consult internet forums for people who have been through the procedure, or speak with a local builder to see what may be required. And spend some time researching what is available in the region of your choice.
The process of purchasing land resembles that of purchasing a home and is likely to involve the following steps:
If you want to finance the acquisition of land, examine your alternatives with a lender. This discussion will assist you in determining your budget for land. Your lender will explain numerous potential financing options, such as a land loan, USDA loan, SBA 504 loan (for business usage), and home equity loan.
Typically, the process of purchasing land begins with an experienced agent. Look for a specialist with knowledge of the region and expertise in land transactions. Some real estate agents who have received specialized training in land sales will market themselves as certified land consultants.
While it is feasible to do the legwork on your own, a local builder may assist you in determining if a plot is appropriate for construction and guiding you through the development process.
In addition to working with your realtor or builder to discover the property, widen your search to include local newspapers, online classified ads, land-specific websites, and even a physical check of the region for for-sale signs, particularly in remote locations.
Consider if you will be able to construct the home you like and whether you will be able to do it within your budget. Consider zoning, setbacks, legal access to the site, the availability of utilities, any HOA restrictions, and environmental and soil constraints, among other factors. Contacting specialists such as attorneys, inspectors, surveyors, and contractors for assistance in navigating all of this material is strongly advised and may make this process much simpler.
You will collaborate with your agent to create an offer. Financing, including a property assessment, title investigation to ensure there are no liens or other owners, and buildability as established by soil testing, setbacks, and zoning are some of the considerations to consider. Ensure that the offer offers you sufficient time to explore the concerns so that you are not tied into a contract for unbuildable land.
Now that you know the property's price, you may formally apply for a loan if you like the lender you're dealing with. Your lender will check your income, assets, and liabilities as part of the loan's underwriting or risk assessment.
Once your financing has been accepted, your lender will schedule the closing date, which is when the deal will be finalized. Even if it's only liability coverage, you should obtain homeowner's insurance.
After closing, the land is yours.
How long does it take to buy a house? Read our article.