I am beginning to look for some land on which to build a home. At this point I know little or nothing about it. I was wondering if anyone has any pointers on what to look for or what terminology I need to be familiar with.
Also, I see a lot of property in the newspaper for zero money down and the owner financing the rest at a decent rate…seems too good to be true…is it?
I’ve got no experience with doing this, but what I’ve heard is that taking out a loan to buy land is much different than taking out a loan to buy a house because lenders don’t like to lend on raw land as much. Their thinking may be that it’s easier for you to abandon raw land because you don’t really have a commitment to it.
So, loan terms tend to be really short, interest rates tend to be comparatively higher, and the required debt to equity ratio tends to be higher (probably 80% with few exceptions). Also, many lenders will only lend on it if you show them some solid plans to build on it within a certain amout of time.
Also, I’d bet that many of the lots being sold for 0 down and owner fiancing are sold in new subdivisions as a promotion to get folks in. If you find one of these lots you like and qualify for this promotion, great.
If the land is being sold through a Real Estate agent, they should be able to advise you on the financing issues.
Other than financing here a a few things to consider:
Mineral rights: you might buy land and discover later on that some company has the right to mine for lead or some other mineral.
Water rights: an issue in the western US
CC&Rs: These are restrictions on use that may be established when land is subdivided. Examples could include house size and style, fences or no fences, number of dogs & cats, fees for maintaining roads. And most important to me, I’m a Ham, no antennas!
When you’re looking for land for a home, you need to know if the land percs if there is no sewage lines in the area. We bought two adjacent lots - one percolated but will require a mound for a drain field, and the other didn’t perc at all. We knew this before buying. Since it’s in an established older neighborhood, getting a loan wasn’t a big deal. Having owned homes for 20+ years, we knew what we did and didn’t want in a home and a neighborhood - like NO HOA!
A good indicator would be for you to look at adjacent properties and decide if it’s where you’d like to be. We looked at a number of lots that were cheaper, but the homes in those areas were ill-kept and the yards were full of junk. As in most things, you get what you pay for.
Use your head and trust your gut. Good luck to you.
Don’t forget to check the floodplain status. You can check floodplain maps for the U.S. at FEMA’s web site. I have a link if you want it.
If you need to borrow just to buy the land, it’ll be easier if you borrow for the land AND your home construction at the same time. If you can buy the land outright, do that, and then use the equity toward a down payment on the construction/mortgage.
newcrasher, I looked for your location field & it’s blank, maybe you can tell us where you are?
Im in California & the other day I saw a guy pushing land on the tube, it looked like swampland from the picture in the back. I can't believe they are still pushing that stuff.In addition to the good points above:
What type of land? Especially if it’s out in the country, you need to verify if it has access (right-of-way or public road), water, sewage handling, electricity, and what the zoning is.
Also is it in a flood plain, and/or whether it is vulnerable to landslides or subsidence.
Then the purchase needs to be subject to a title search, which verifies that the seller really does own it and there are no liens against the property.
A real estate agent can help a lot with all these questions.