Buying Land to Build a Home: What to Know

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Many folks have probably thought about purchasing their own piece of land to custom build a home at one time or another.

You are not alone if you are thinking about buying land to build a house. In fact, according to The National Association of Home Builders, the number of Americans who are buying land to build a house has increased by more than 50% in the past five years alone!

However, finding a great lot to build a home can be super challenging in many areas of the country. Where I am located in Massachusetts, it is like finding a needle in a haystack.

The best land has already been built on for many years. Given land isn't a simple purchase, it is essential to understand the ins and outs. We will take a look at everything you need to know about building land to build your dream home.

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What to Know About The Land

Understand The Lot Size

Whenever you are buying a building lot, it is crucial to know beforehand not only what you need but also the characteristics of the land. One of the first things to get comfortable with is the size. Do you want acreage, or are you fine with having a smaller piece of land?

People will often discuss the square footage when the land size is discussed. The number of acres is often posted in advertisements. Many people will ask a real estate agent how big is an acre. One acre of land is 43,560 square feet.

To give you a visual understanding, that is around the size of a football field. Will that give you the kind of space you're looking to achieve? That is something to consider. You might find you need more if you don't want neighbors on top of you.

Is The Land Ready to Build On?

One of the most vital things to determine when looking at land is whether it is ready to build on. Some land is ready to go, while others need improvements before is can become buildable.

There are a few things you will need to check right off the bat. Does the land have a public sewer, or does it need a septic system installed? If the land has a public sewer system, that is a big plus. Septic systems have significant variances in cost.

Not only is the cost a factor, but you must also ensure that the city or town has approved the septic system. Without an approved septic system, the land is not buildable.

Does The Land Have Wetlands?

Another vital consideration when purchasing land is whether any wetland constraints could prohibit what or where you want to build. When wetlands are on a lot, there will usually be "orders of condition" from the local conservation commission. The orders of condition explain what you can and cannot do with the land.

Maybe you are planning on having a swimming pool in your backyard? It is possible that wetlands could stop you from doing things you're planning on. Make sure you know what you're up against.

Is The Land Near or in a Flood Plain?

When the land you want to purchase is located within a flood plane, you will need to have flood insurance. Flood insurance is different from your standard homeowner's insurance policy.

Unfortunately, flood insurance can be very expensive. You'll want to know exactly how much extra money you will set aside each year for this.

Is There a Homeowner's Association?

If the building lot you plan on purchasing is located within a neighborhood, you need to know if there is an HOA. When there is an HOA present, there will be rules and restrictions that all owners need to follow.

You may find out something in the covenants that you're uncomfortable with. Buying a lot and then finding out you can't put your camper in the driveway would be disappointing.

Sometimes rules within a homeowner's association can be overbearing. Examples include being unable to paint the house the color you want or having a garden.

How Will You Finance The Purchase of Your Land?

There are essentially two ways to finance the purchase of land, and your time frame for the building will dictate which to choose. When you are going to be starting your project immediately, a construction loan is the type of financing you will need.

Construction loans allow you to buy the land and finance the house construction all in one loan. When you are done building the property, it will become a permanent loan.

On the other hand, if you have a longer-term horizon on when you want to build, a loan for land will be the better choice. You will be financing just the land acquisition cost with a land loan.

Land loans are harder to come by. Not every traditional lender will do a land loan. Credit Unions and local community banks are some of the best places to look.

Final Thoughts

The timeline for building a house on land you buy can vary depending on several factors, including the type of land you buy, the size of the house you want to build, and the type of construction you choose to use. However, generally speaking, the timeline for building a house on land that you buy can be anywhere from six to twelve months.

You must do your due diligence when buying land to custom-build a home. It is easier to make mistakes than when buying a resale home. When you need help finding a lot, speak with a local Realtor. The seller typically pays for a Realtor's commission, so it won't cost you a thing to have someone actively looking for you.

Finding a realtor who understands land and the home-building process is essential. When you find the right agents to help in your search, they can be a significant asset.

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Bill Gassett is an avid writer for numerous real estate topics including finance, mortgages, moving, home improvement, and general real estate. His work has been featured on numerous prestigious real estate publications.

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