If you have always dreamed of having a custom home built exactly the way you want it, you know the first step in the process is finding and purchasing an undeveloped plot of land. The opportunity with an empty lot may seem limitless, but this method of home-buying can come with a few risks as well. It makes sense that once you own a plot of land, you would be free to do anything you want with it, but there are still some things to consider.
Lengthy Process
Just because you have found the perfect lot and finalized the designs for your home, this doesn’t mean you are immediately ready to break ground. For any location where you may purchase your land, there will be a zoning process whereby the local municipality will decide what you can and cannot build on the parcel in question. You may think such rules are limited only to whether a structure is residential or commercial, but there are more detailed nuances involved. In some locations you are restricted by the size of the home versus the size of the lot, number of stories, length of driveway, etc. Do your research first to determine whether or not your dream home’s plans will be easily approved.
Financing
When you purchase an existing home, the collateral for your loan is the house itself. When you purchase land, no such high value collateral exists, so financing will be a bit trickier. Lenders often look at financing raw land as a high risk loan, so you’ll need to have pristine credit. Even with great credit, you may be expected to make a much heftier down payment than you would if you were purchasing an already built house. It is not out of the ordinary to be required to cough up 30% to 50% of the land’s purchase price up front.
Easements
Be sure to fully research any parcel of land you are interested in before considering making an offer, and especially inquire about any easements the land is subject to. An easement is a situation where another entity is legally allowed to access your land for their own purposes. For example, the land you want to purchase may have an existing power line running through it, and your local electrical utility has the right to service the line even if it means bringing heavy machinery onto your property. Information on easements can be found by conducting a thorough title search and land survey. Having the property surveyed is also a best practice for logging the exact location of the parcel boundaries.
Rural Concerns
If your dream home’s setting is a pristine mountain valley or rural farming area, it may not be on a local municipality’s sewer system. In this case, any structure you build on it may need a septic tank, which requires a percolation test. A percolation test is used to gauge the soil’s capability to absorb liquid that goes out of a septic tank. If the results show that the land is not capable of supporting a septic system, you will not be allowed to build on it. It is very important to conduct this test before you purchase a plot of land to see if it passes first before you are stuck with land you cannot build on. You will also need to construct a well if you are not on a municipal water system, which could cost you as much as $10,000 depending on the soil type to be drilled through. You may also need to add a fire hydrant so firefighters will have access to a rural water supply. If you take into account additional requirements such as tanks and pumps, you could be spending as much as $50,000 so your land gets a stable water supply.