So You Want to Buy Some Land in the "Country"?
Dreaming of your future home on acreage in the country?
With the density and population growth continuing to skyrocket in the Dallas Ft. Worth Metroplex, I often hear my friends talk of buying land in the “country.” When pressed further, what they are really saying is they want acreage where they can build a house AND they want it located outside of the existing metropolitan suburbs (lower density, lower taxes, etc). Can these dreams become a reality? Of course! BUT, it is a completely different process. So, I’ve outlined a few key things every “land” buyer should know.
Financing
Unless you’re fortunate enough to purchase land with cash, you will need to get pre-aproved for financing the land/build purchase. Yes, the pre-approval process is also used when buying a home, but that’s where the similarity ends. What’s the difference? Well, you may be surprised that most mortgage companies/banks DO NOT finance land purchases. So, when you’re beginning this process, I strongly recommend that you work with a Realtor who not only can help you find your dream acreage, but who can also direct you to a reputable land lender.
Buying Land with some structures?
Sometimes you’ll find a property that will have acreage and some existing structures like a barn, fencing, utility building and maybe an old residence. In analyzing the deal, you and your Realtor will need to determine if the value is primarily in the acreage or what, if any, value is attributable to the structures. This analysis will determine if the purchase is a “land” purchase vs a single family residential purchase that includes land. For example, I recently showed my clients a 15+ acre property that had a double wide trailer, a barndiminium, and a barn. The double wide trailer had been moved twice and it was in terrible condition. The barndiminium was currently being used as a residence, but it was “rough” inside — essentially a renovation in progress. Based on comparables in the area and the condition of the structures, the primary value was in the land. This purchase would require a land mortgage. By comparison, I showed these same clients a 2+ acre property with a single family brick home and a large utility/workshop building. Here, even though the house was not to my client’s liking, there was significant value in both structures, so this would be a “normal” single family home mortgage that happens to have acreage as part of the property.
Land and Future Home
So let’s say you find the perfect piece of property where you want to build your future dream home. How your financing will be set up will be determined by how FAST you’re going to build. For example, I work with a lender who will provide the land financing and home construction loan as long as you start construction IMMEDIATELY!! That means you have to have all your architectural plans, building permits, etc ready to go. Honestly, most people won’t have everything ready beforehand. In the latter case, the land loan will come first and then the land lender will provide the construction loan.
Land Loans Have Different Rates and Requirements
The other thing to keep in mind is that land loans do NOT have the same rates and terms as your typical single family residence (SFR) purchase. Why? Well, if for some reason you default on your land loan, the bank only has a lien on the raw land - which typically takes longer to resell.
Down payment typically 20%
Interest rate is higher than SFR (as of Jan 2020 rates are in the 5+% range)
There are more things to know that what I’ve listed above, but when you’re ready to take that step into buying land, feel free to reach out and we can discuss further and I can recommend a preferred lender who does land loans.