If you’re planning to build a custom home, then you’ll need to find a lot, or home site, to build on. Let’s take a look at the steps you should take before buying land.
Find Your Lot
Finding the right lot for your custom home can feel overwhelming if you don’t already have your dream lot lined up. To save time on your lot hunt, narrow down where you want to live and then start researching available lots in those areas.
Once you’ve tightened your search radius, you have a number of options to go about finding the perfect lot:
- Use a Realtor.
- Bid on land yourself in a land auction.
Real estate agents and brokers often have access to a large collection of property for sale through multiple listing services (MLS). Look for a real estate professional who is well versed in land or lot purchases. You will be charged a commission, around 3 percent to 5 percent, for the sale, reflected in the overall price.
If you want to avoid paying someone to find your land, you can explore local auction companies for property auctions. Many hold live auctions or sell online. GovernmentAuction.com lets land shoppers purchase affordable government land via live auctions. The seized land on GovernmentAuction.com includes single-family home plots ranging from 1 acre to 640 acres near desirable features like lakes, mountains and golf courses.
Check Local Zoning Ordinances
You have to check your local zoning laws before you commit to building on the “perfect” piece of land. While you can research zoning laws yourself — if you aren’t connected with a custom home builder that manages any zoning requirements — you should speak with a local attorney to ensure that you don’t spend money on a worthless lot.
Check with your local zoning office or look online for the zoning records for the land you’re interested in purchasing. Pay attention to the surrounding land as well and try to gauge what future zoning and construction will happen in the area.
Make sure the prospective land has access to a street. If it doesn’t, you will need to get an easement, or permission to use a neighbor’s property, to access your home. If you need to acquire an easement from a landowner, consult a land agent or real estate agent to help you write up the deed.
Check Out the Neighborhood
Consider what kind of neighborhood is going to be the best fit for your family long-term before purchasing a piece of property. As you search for the perfect lot for your custom home, think about how you want to live, and keep the following in mind:
- The commute time to where you work
- The crime rates in the surrounding area (You can use a tool like CrimeReports to find this information.)
- How long it takes to get to daily necessities like grocery stores, shopping and schools
- If you have children, how well the local schools are rated (Niche.com has some of the most accurate ratings and reviews of school districts.)
- If you want to live in a neighborhood with a homeowner’s association
- If community amenities help foster your desired lifestyle
- If it’s a close-knit community
- If it’s the kind of community where neighborhood kids play outside
- If you have any special needs for where you live, does this community meet them
Spend some time in communities where you’d like to build to get a true feeling for the neighborhood. Drive to your daily necessities to get a feel for area drive times. Ask residents how they feel about their community and if they spend time with their neighbors. Taking the time to really understand the community can help you determine if a lot there is the right place for your new home.
If you are thinking about building your custom home in an HOA-controlled community, be sure to ask about HOA fees, rules and regulations. You should also ask for a written copy of the community bylaws. To ensure you build in a community you truly love, do not start looking at lots until you read the bylaws and know that you can happily follow all of the rules.
Also consider the area’s growth rate. Is there a lot of new home construction or new businesses opening? Or is the neighborhood more established with plenty of amenities already in place? To get accurate information about a neighborhood’s growth rate, use the Census Explorer from the Census Bureau. This interactive map lets you dig down to the neighborhood level and learn all about population patterns of your potential new community.
Financing the Lot
Building a custom home on your own lot is typically more expensive than purchasing a production home due to the added cost of purchasing land. According to the Federal Housing Finance Agency, undeveloped land in nonrural areas cost on average $6,500 per acre, adding to the overall price tag for your new home. Your land cost, along with all the customizations you want to include in your home, can increase your custom home’s bottom line.
First, you should make a reasonable budget so you don’t overspend. Then, find a lender to help finance your land and home. Before talking to your lender, obtain your credit information and bring documentation of your income and employment, bank accounts and other funds and assets.
A construction loan covers the custom home you plan to build and the land purchase. You will pay for two closings, first on the construction and second on the permanent mortgage. It is a short-term loan, ideal if you hired a builder and have the house plans drawn out. This loan is similar to a line of credit; you only borrow what you need, when you need it, and only pay interest on the amount borrowed.
This type of loan covers the purchase of the land but not the construction of your custom home. This loan is a lot less common, as lenders are more hesitant to underwrite a loan for a land purchase. They typically ask for a 50 percent down payment, compared to 10 percent to 20 percent for a home. The interest rate can also be higher than on a home loan. A land loan is an option to consider if you don’t have immediate plans to build on your lot, because when you get a land loan, you’ll still need a construction loan.
This is a type of single-close financing, similar to a construction loan, that covers the cost of the land and the build. It converts into a regular mortgage after construction is complete. Like any other mortgage, you can choose a fixed-rate or adjustable-rate loan. Lenders require a down payment of at least 20 percent of the expected amount of the permanent mortgage.
Negotiate and Sign
If you’re buying land on your own, negotiating can be a scary. Don’t be afraid to stand firm with your price. Before making your bid, evaluate the lot’s appraised value and compare with similar surrounding properties. If the seller is firm on their price, ask them to cover some of the closing costs.
When you draft the agreement, include contingencies that need to be met before the transaction is complete. An example of a contingency is having the seller give you a clear title report before closing. If they do not meet this contingency, you can break the contract.
Once you’ve finalized and signed the agreement, you can proceed with having a land survey completed on your newly purchased lot. During this time, you should have the title report run to confirm the seller owns the land and can transfer it to you. Talk to the seller about buying title insurance, which protects you in case there is a problem with the title. These fees can be added to your closing costs.
At this point, all that’s left is to attend the closing. Congratulations! You’re one step closer to building the custom home of your dreams.
Shannon Wilson is a former Digital Content Associate for Builders Digital Experience (BDX). Her main role was to create video content, write and edit articles for NewHomeSource.com and HomLuv.com. Shannon graduated from Texas Tech University in May 2014 with a bachelor’s degree in Electronic Media and Communications.
Prior to her work with BDX, she worked at a newspaper in West Texas and at television stations in Omaha, Nebraska and Albuquerque, New Mexico. She was a multimedia journalist — or a one-woman-band reporter–meaning she wrote, shot, and edited all her own material.
Shannon is excited to be back in her home state. She enjoys traveling (she’s been to 13 countries and counting!) and exploring the great outdoors Texas has to offer!