Many people dream of owning a chunk of land and putting their dream house on it. Maybe you fantasize about pulling out all the stops and designing a home with every feature you’ve ever wanted. Well, to make that dream, or at least part of the dream, a reality, you need to know how to buy land and build a house.
A financial advisor can help you determine which assets to liquidate or otherwise arrange your financing.
How to Buy Land and Build a House: 4 Steps
Buying land and building a house on it seems like it would be as simple as that, but it’s not. There are a lot of factors to weigh before going down this route. It can be expensive to build your own house on your own land. You may determine that you can afford more homes if you buy an existing house.
But, if you want to know how to buy land and build a house, start by reading these four steps.
1. What to Consider Before Looking for Land
There are several factors you need to account for before you start your hunt to buy land. Here’s a list of what you need to think about before starting your search:
- Location specifics: Most land available for purchase isn’t in populated areas. You need to research how accessible the land is if there are roads nearby and if they’re paved. You also need to make sure the land is zoned for residential structures.
- Utilities: You need to think about how you’re going to get electrical, gas, water and other utilities to the property if they aren’t already there. You may need to dig a well, install a septic tank and run your house off of a propane tank.
- Size and layout: How much land do you want or can afford? More land can mean more privacy, but it can also mean more work.
- Environment: If you want a large, flat lot with a big lawn, don’t buy a hilly, forested area. You’ll destroy the ecology of the place and face a big expense in transforming the land. Instead, find something that offers an environment you want, preferably one that’s easier to build a house on.
2. Financing Your Purchases
Financing a land purchase isn’t as easy as applying for a traditional mortgage. Most people recommend purchasing land with cash. This can be a major hurdle if you don’t have the money to make the purchase up front.
If you’re wondering how to buy land and build a house without cash, you may be able to get a land mortgage. A common place to start is by consulting with a local bank or credit union to see if they’ll lend you the money.
Just know that you’ll have more luck getting a loan on improved land that’s ready for a house than you will on raw, unimproved land. Improved land is preferred anyway, as it will be much more affordable for you to build a house on.
3. Financing the Construction
You’ll also need to fund the construction of your home. Unless you’re paying in cash or have some other funding, you’ll need some form of construction loan. For building a house from scratch, construction loans come in two types: stand-alone loans and construction-to-permanent loans.
Stand-alone loans only fund the building of the house and usually must be paid once construction is done. They can be paid for in cash, or through a traditional mortgage on the property. These loans typically are best if you have a good chunk of cash on hand and/or aren’t settled on a mortgage lender.
Construction-to-permanent loans can be a little simpler. It’s one loan with one lender that funds the construction, then it converts to a monthly mortgage payment once the house is built.
4. Preparing to Build
Once you’ve purchased the land, you’ll need to prepare to build. This means hiring a contractor and an architect and applying for a building permit to get your home built. Do your research before hiring. Ask any prospective architects and contractors for some references so you can talk to people they’ve worked for.
Chances are that, if you hire an architect and a contractor familiar with the area, they know the local building codes and requirements for the permit. The cost of a building permit can range widely depending on the area. Expect to pay anywhere between $500 – $2,000 for a permit to build your house.
Do You Need to Hire a Real Estate Agent to Buy Land?
It’s not required legally to hire a real estate agent or realtor to buy land, but it’s probably a good idea. A real estate agent or land broker experienced in land deals in the area you’re interested in will be able to guide you through the purchase.
While many people have bought a house before, not nearly as many have bought land. Having an experienced agent can be invaluable for advice and guidance. They’ll be able to find the right property for you and help you negotiate the sale. On top of that, they may be able to recommend a good lender or reputable area contractors to build your home.
The Bottom Line
If you’re wondering how to buy land and build a house, these four steps are the first things to consider. The process of buying land and building a home can be a lot to juggle. For most people, they’ll need to hire at least a few professionals to get the job done. Work with a real estate agent, an architect and a contractor to find the land and have your dream house built.
Home Building Tips
- If you want to buy land and build your dream house, a financial advisor can help you get the job done. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Saving is important when you’re looking to buy land and build a house. You’ll likely need a lot of cash to fund the project. Setting a budget with SmartAsset’s budget tool can get you on track.
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