Insight To Consider When Buying Vacant Land For Your Next Home Build

Posted on: 9 January 2020

When buying a home, you have the option to choose the land you want to live on and select the building plans for your home, complete with all the amenities and features you want. However, because you are not buying an existing home on a specific lot, there are some regulations and lending requirements you need to be aware of. Here are some ideas to consider when you are planning to buy land for sale and improve the lot so that you can build a house upon it.

Plan For a Down Payment

The fact that raw land has not been improved upon and is in its natural state makes it readily available in many parts of the country. This allows you to buy land in virtually any location and in any climate that fits your preferences.

However, when you buy raw land, it does not have the improvements you will need to immediately build a home upon, so it can be considered a larger risk to a lender. If, for example, your finances were to become tight, you are more likely to default on a loan for vacant, raw land. You would first make sure to budget for your housing payment, food, vehicles, etc. For this reason, a lender will usually require a larger down payment of anywhere from 20 to 50 percent on a loan for raw land because of the default risk. 

Plan For Building Improvements

The process to buy raw land can require you to make a larger down payment; however, if you include plans to immediately improve the property, this can change your loan situation. A lender will usually look differently at a loan to buy land which you plan to immediately improve. By providing the lender your improvement plans and details including a blueprint and a contract with a builder, they can provide the financing with a lower down payment requirement. And your financing can even have a lower interest rate because the loan's risk is less.

Also, keep in mind that if you hire a builder to construct your home with plans included with your land purchase, you can apply for a construction loan. A construction loan will include the purchase of the land and the home construction combined and, as a result, be a lower risk loan than a land loan.

Look For Seller Financing

If you have your heart set on a plot of land that is not improved with sewer, water, and electricity, and you have not finalized the building details yet, you can still buy your land. As an alternate, you can look for a seller who is willing to finance the property's purchase. In this transaction, you would make payments to the seller with a written agreement to you where you will gain title to the property.