Buying Land for Your Dream House
By: Victor R. Normand
Published: June 2012
The best way to find the perfect dream house is to build it yourself. That’s easier said than done for most of us. The list of tasks associated with building that dream house is long, complicated and often very changeable; it’s easy to get overwhelmed and discouraged. Get started by holding on to the big picture, but focus on finding the right piece of land.
Don’t let land costs be the only factor in deciding location.
Buying land further out in the country will be less costly than land in the suburbs closer to employment hubs and urban areas. But while your budget for the project may look better with a country site, ask yourself how you might like living in a more remote area. It could be the perfect time for a move to a quieter place, just be sure it works for you. (See land sale by county chart)
Financing the Land Purchase
While you are deciding on what towns you might want to live in, figuring out how to pay for land needs to be considered. Land loans are risky loans for lenders, and unimproved or raw land is the hardest land to secure financing for. Raw land has no improvements like sewers, utilities, streets or structures. A loan to acquire raw land could require a down payment of 50%, though a local lender more familiar with the area might make such a loan for a lesser down payment. Loans to buy land are considered story loans, meaning the lender is more likely to make the loan if they understand what the story is behind the loan.
For some, one option is to use a home equity loan or funds from a refinancing of your existing home. Not only will this loan be easier to get because it is essentially secured by a home and not land, but interest rates will be considerably lower, and the interest payments could be a tax deduction.
Now that you have narrowed down the towns where you want to buy, identified potential lots for sale, and decided on how to finance the transaction, it’s time to get into some of the specifics of the process leading up to a purchase. The considerations include:
- If the lot is raw land, and town sewerage in not available, has the soil been “perced?” Meaning is the land suitable for a septic system. If the “percolation” and deep hole tests determine that the soils are good, the type of system needed should be identified. Prices for engineered systems are considerably higher than standard system, so know for sure what needs to be built. Some lots are marketed with this information in hand.
- What utilities are available to the lot? In addition to town sewer or septic capacity, the availability of water, natural gas, electric power, telephone, and cable access needs to be evaluated in terms of the costs to permit, transport, connect, and operate. Sometimes the utility company will pay for the connection costs, sometimes not. Depending on how great the distance the utility line needs to come, the cost can be high.
Pricing the installation of a well is always difficult; it is mostly a function of how deep the well must be drilled before an acceptable flow is achieved. Water quality is also an issue and may require ongoing treatment.
- Is the land wetlands or in a flood plain? Both situations are not always obvious so you should consult the appropriate local conservation/zoning officials for a determination. This does not mean the lot cannot be developed, only that there are constraints that need to be taken into consideration.
- Is the land wooded? Not a big issue, but one that adds costs to the project for clearing where the house, yard and drives will go.
- What is the effect of local zoning on development? Just as the existence of a flood plain or wetlands restricts where you can build, local zoning bylaws provide for set-backs, height restrictions, open space, parking, slope and drainage among other things that need to be considered. So, before you decide where your dream house would go, first determine where on the lot it cannot be built.
- Are there easements or deed restrictions on the lot? This information should be disclosed on the property listing sheet, but you should ask anyway and be sure to thoroughly understand the details and effects of any easements or restrictions.
Getting a general sense of all of these issues is important before making an offer on a piece of land. Satisfying all of these matters can be handled as contingencies in a formal offer to purchase. This is important because you want to be sure you have control of the lot before expending money to test and pay consultants.
Here are a few other things to keep in mind:
- Once you have purchased the land, costs begin to accrue like interest on the land loan, property taxes, and liability insurance. All of these costs add to the total cost to build your dream house.
- Before you sign a contract to purchase, visit the property at different times of the day and days of the week. You do not want to be surprised by sights and sounds that only occur when the wind is of a certain direction or at certain times of the day.
- Buying title insurance is a must, and there will be other legal costs as you move from due diligence to purchase.
As you progress with the land search you will become more familiar with the basics and having a “Resident Expert sm” on your team is always the best idea. Once the land is secured, the real fun of designing your dream house can be finished, and then, the most stressful part – construction.