What Do I Need To Buy Land
Certain factors can determine whether a piece of land will satisfy your specific needs and influence the difficulty and expense of developing on it. As you search for land, keep the following considerations in mind.
what do i need to buy land
If you choose to build a house, chances are you might have to apply for a land loan. While Rocket Mortgage does not offer land loans or lot loans, we understand the importance of educating our clients, and we can help point you in the right direction to find the right lot for your new home.
You can also increase your chances of qualifying if you make a large down payment (typically 20% or more) and have good credit. While the purchase price of raw land can be cheaper than developed land, raw land loans do have higher interest rates and require more significant down payments compared to other land loans.
Unimproved land is similar to raw land, but it tends to be more developed. Sometimes unimproved land has some utilities and amenities, but typically lacks an electric meter, phone box and natural gas meter.
Unlike raw land and unimproved land, improved land has access to things like roads, electricity and water. Improved land is the most developed type of land, so it may be more expensive to purchase. However, interest rates and down payments for an improved land loan are lower than they are for a raw land loan or unimproved land loan. Nonetheless, it's still important to make a significant down payment and have a good credit score.
Land and lot loans are obtained in the same way a buyer would obtain a mortgage loan for a house, but unlike receiving a dollar amount assigned to the property, it can be harder to determine what the land is worth because there is no property collateral.
Because there are different types of land loans, each has its own qualifications for borrowers to meet. However, there are still general guidelines that are taken into consideration when a borrower applies for a land loan:
Once the construction of your new house is complete, you also have the option to refinance your land loan into a traditional mortgage. Refinancing can help you secure a new principal balance and lower interest rate. At Rocket Mortgage, in order to refinance to a traditional loan, your home will need to be fully completed and you must obtain a Certificate of Occupancy.
Seller financing can also be a desirable option for some borrowers. Seller-financed land agreements are sometimes called land contracts. These are real estate agreements where the seller acts as a lender and handles the mortgage process directly instead of a financial institution or lender. Instead of applying for a traditional mortgage, the buyer signs a contract with the seller.
This option can be beneficial for buyers because sellers tend to be more flexible than financial institutions, which means it might be easier to qualify for a seller-financed loan than a traditional one. Seller financing can be useful for aspiring land buyers who might struggle to qualify for a land loan or afford a large down payment, but there are downsides to this option as well.
If the land is in an eligible rural area and you plan to build your primary residence on it, you might qualify for a USDA loan backed by the U.S. Department of Agriculture. These loans typically have affordable interest rates and down payment requirements. Options include Section 523 loans for those who plan to build the home themselves and Section 524 loans for those who will hire a contractor.
The Small Business Administration (SBA) partners with financial institutions to provide financing for business owners who purchase land for business use in the form of an SBA 504 loan. You could qualify for this kind of loan with a 10 percent down payment.
If you already own a home, you could consider tapping your existing home equity with a home equity loan. This approach will likely be much less expensive than a land loan, but proceed carefully when using your house as collateral.
The classifieds section in your local newspaper could advertise listings from land owners selling parcels independently, and you might be able to save money by connecting with the owner directly. There might also be niche publications with listings for land specific to your interests, such as land for hunting, recreation or farming.
A real estate agent can be a big help in facilitating your land search. However, you can also do it yourself. Checking the classified ads in newspapers, you can often find landowners attempting to sell their land independently. A specialty magazine or publication might highlight select pieces of land for individuals interested in buying farmland or hunting land.
There are also a great many online platforms where you can access commercial real estate listings. Specialty sites for finding land include Land and Farm, LandWatch and LandCentury. You can even find listings on general sites like Craigslist.
One important step to take before finding a lender is to have the land surveyed by a professional. This involves hiring someone to look at how accessible the land is, figure out its dimensions and find out whether anyone already has the right to use the property.
Anyone who needs a raw land mortgage should be prepared to pay a high-interest rate. In addition to looking at your credit and your background, your lender might want to see details about what you intend to do with the land. Your chances of getting approved for an improved property loan are significantly higher.
Buying land by itself is very different from buying land with established real estate on it. The land is worth less because the value is typically driven up with other assets to account for the property that has its own value. This includes having a home or commercial building as well as if the land already has running water and electricity flowing into it. Everything that has a cost could hurt the overall value of the land itself.
Land purchased in 1970, for instance, has likely seen a significant value increase over the years despite many market fluctuations. If you purchased land just before the market crash of 2007, on the other hand, it will probably turn up a loss if you try to sell today.
Land ownership can be a great investment as long as you enter the deal with an awareness of all of the risks and pitfalls involved. By conducting careful research, investors can take advantage of low property prices and purchase land that will be worth much more down the road.
Owning land can be a good investment depending on the land, its location, and how you plan to use it. For example, purchasing a plot of ready-to-build land as a primary or secondary home has a different degree of risk from purchasing a piece of raw land intended for farming.
The first step to applying for a land loan may be locating the right lender for your purchase. Not all lenders offer land loans, but plenty are out there. A local credit union might be a good fit if you are going to work to develop land in your community. You will need to gather all of the paperwork, including a land survey, and information on how you plan to use the land.
Do you crave the seclusion of country acres, a piece of land on which to park your tiny home or a buildable lot in the middle of the city? Buying land can offer a more affordable path to homeownership than buying an existing home if done with proper planning.
However, the process of buying land is different and often more difficult than buying an existing home. Knowing how to buy land can help you determine whether it could be the right path for you. Before making any decisions, ask yourself the following questions:
For example, suppose you want to build a home on a quiet parcel in a rural area. The planning document can tell you whether there are future plans in that area for a landfill, power plant, commercial zone or new road nearby that could influence whether you want to live there.
Staff at the government agencies responsible for zoning are well-versed in the details of the plans and can answer any questions you have. No one expects you to be an expert, so reach out to them if you need help deciphering the plans.
How close to the property line can you build? Local governments impose building restrictions called setbacks on property that will affect where you can build on the land. A setback creates a buffer zone of sorts. It establishes a minimum distance between the home you want to build and a curb, property line or other structure. Setbacks, which contribute to safety, aesthetics and privacy, differ depending on locale. Take the property setbacks into account when determining whether there is a large enough building space for your home in the area you want to build.
Is the soil suitable for building? A simple soil test or geotechnical investigation can determine how much weight the soil can handle. This is critical information that will tell you whether the ground is strong enough to support a foundation. It can be required before you can get a permit to build on the land.
In rural areas, however, buyers may need to go to greater lengths to connect to utilities. That could involve drilling a well, installing a septic system or digging trenches to connect with electricity or water. All are likely to be costly projects. Off-grid technologies can open up possibilities for power, water and waste disposal, but the cost and viability of those options should be considered.
Get bids or estimates on any work that needs to be performed before you sign a purchase agreement, or have your real estate agent make your agreement contingent upon your acceptance of the bids or other due diligence investigation.
If you plan to finance the purchase of land, work with a lender to discuss options. This pre-qualifying discussion will help you understand your budget for land. Your lender will walk you through several, possible financing solutions including a land loan, USDA loan, SBA 504 loan (for business use) or a home equity loan. 041b061a72