Guidelines for Purchasing Vacant Land
Buying vacant land a part of the American ideal of constructing a house, settling down and starting a new life. Homesteaders traveled thousands of miles and crossed waters starting from the 1600s to do exactly that. Today, there is still vacant land available, but the possession process is a little more complex than moving out West and staking a claim. Should you keep a few guidelines in mind, you, too, can purchase your part of this American dream and create your own homestead.
Location drives the value of land. Proximity to natural resources, infrastructure, shopping, commerce and other desirable characteristics determines how much the land will cost. You must become familiar with the plot of land and the area round it to be sure it meets your requirements. Research the land and run any testing for molds, septic, simplicity of sewer and water hookup, access to power, environmental safety and flood conditions prior to purchasing. Many land contracts allow you to make the sale contingent on analyzing results. In addition, you will need to check the zoning for that piece of land to make sure it fits your intended use.
A seller is free to ask whatever he would like for his land, but that doesn’t mean that the land is well worth it. Market research, for example, selling prices and tax values of the surrounding land with comparable attributes, can help you determine if you are spending a reasonable price. You might even apply your research to warrant a lesser offer. Most lenders need land cost for a single-family house to stay between 25% and 30 percent of the appraised price of the home, according to Rob Ransom, an Escondido, California, real estate broker, on his eponymous Land Info website. You must be sure the land cost is not too high for your house you are planning to put on the property and the area can support the whole value of your land and home. If you purchase 10 yards for $100,000 and plan to construct a house for $300,000, a lot surrounded by mobile homes on 1 acre may not evaluate high enough for a creditor to provide you the money.
While a combination loan which includes both the purchase money for the land and building money for a house may not require a large downpayment, lenders need between 20 and 50 percent down on vacant land loans. Not every lender offers land loans, so you may have to search to locate one, based upon your area. Land loans are typically for a shorter term than normal mortgages–anywhere from 10 to 15 years. Lenders provide such loans in a higher rate of interest than traditional mortgages by up to 1 percentage point or more, according to Bank Rate’s property expert”Dr. Don.”