Financing

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Financing

You might be thinking you need to find land before you worry about financing, but that’s not really true. If you find that dream piece of property but don’t have your financing lined up, you might lose the land to someone else because you can’t complete the sale before the contract deadline. If you get approved for financing first, you’re ready to buy. For many people, the hardest part of the entire process is getting financing for land. It’s not because people don’t have the resources, but that lot loans are not a really popular product for banks and they don’t make much money on small loans like that. Some banks will make lot only loans, but it’s usually best to make that loan as part of the construction loan. That’s why being pre-approved and ready to act are important in the process.

To obtain financing, you’ll need to supply all the usual financial documents to get approved for the loan. You’ll also need the legal description of the land, the appraisal, and a title commitment showing that the land you’re about to buy is legally owned by the person you’re buying it from.

If you’re buying and holding the land, keep in mind that banks consider it riskier to lend money for raw land then they do for a house. Because of this, land loans typically require more cash for the down payment and a higher interest rate on the loan, which is another reason to roll it directly into a construction loan, or if your situation permits, pay cash for the land which will later be counted towards your total down payment.

Finding Land

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Finding Land

Finding land that meets all your criteria (location, school district, size, topography, solitude, price, etc.) can be a big challenge as well. We work with people all the time who are struggling to find that right piece of land. This isn’t an exhaustive list, but these are the ways to find land that have produced the best results for our clients over time. You can use one or more of the following techniques simultaneously to conduct your search. Sometimes in areas we work, our New Home Specialists have details on various lots and areas that might be for sale and fit your needs. Here are a few other places to look:

Real Estate Agents
Websites (Zillow, Realtor.com, Landandfarm.com, etc.)
For Sale By Owner signs (many pieces of land change hands this way.)

Evaluating Land

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Evaluating Land

Once you find that piece of land that you’ve been dreaming of, it’s time to think about what it’s going to take to make it ready to build a home. You’re essentially getting ready to do what a land developer does for a residential subdivision, though on a much smaller scale, so there are several areas to consider. Our pre-construction process is the definitive resource to get a finalized fixed cost for building and we double and triple check all of the items below and more. We understand that isn’t for everyone and they might want to do some research on their own before spending a time, so here are some things to consider while you look for a lot before you get serious enough for a pre-construction agreement with us:

UTILITIES

Electricity: Some providers will run power to your site for free, others will charge a fee. Sometimes they have guidelines in terms of when they will run power to your site.

Water: Pretty important. Is city water available? If not, can you drill a well? Don’t assume you can just drill a well, you will need to have a well-drilling company assess the property.

Sewer: Least likely to be available in rural areas, in some cases a small lift pump may be able to be installed. If no city sewer is available you’ll need to install a septic system.

Natural Gas or Propane: You don’t have to have natural gas, although it is nice to have. You can also easily install a propane tank.

Phone, internet, and cable: Phone, internet and cable are available almost everywhere now days, however there are still some outliers. Make sure you talk to the phone company about their coverage before you buy.

FLOOD PLAIN / FLOOD WAY

It doesn’t matter what the land looks like, where the nearest creek is or whether it’s on top of a hill. You have to determine where the land lies in relation to the FEMA mapped flood areas.

ZONINGS

It is not often we run into this, but zoning can be a brick wall at times. You will need to determine if the zoning is compatible with building a house.

SURVEY

Generally when you make an offer on the land, you also make a contract requirement that the seller provide a current survey.

SITE PREPARATION

How much is it going to cost to carve out a clear, flat spot with proper drainage for your new home? How dense are the trees? What’s the slop? These are all things to consider when evaluating the land.

Negotiating for the Land

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If you’ve lined up your financing, found and evaluated the land, and everything looks good so far, it’s time to negotiate the deal with the owner. We have found that the best results come from an honest, good-faith, and fair market value initial offer.

There are two main steps to negotiating ...

Negotiating for the Land

There are two main steps to negotiating for the land:

Figure out fair market value and compare it to your budget; and
Make your offer and negotiate the deal.

Remember your budget—and the room you have to maneuver and stay within it. If you use all your budget, that’s fine. It may be totally worth it if you get the land you are after.

Price is only part of the deal, which gives you other areas to negotiate if needed. Other items that are negotiable include:

Closing date. Remember you’ll need to close on your loan (either land loan or construction loan) simultaneously, so make sure your lender is confident he or she can meet the deadline. You don’t want to lose your land or your deposit at the last minute because the lender wasn’t ready to close.
Concessions, such as including or excluding some item that exists on the property but isn’t really part of the real estate, such as equipment or supplies. That could mean leaving timber or a fence up on the property, or perhaps an old shed.
A pin survey & perc test, and whether you or the seller will pay for it. (Perc test is for septic suitability.)
Property size. Think about what will happen in the event the property turns out to be bigger or smaller than originally thought. This may seem weird, but it happens, and the difference seems to always be that the property is a bit smaller.

Closing

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This step is pretty straightforward, but the time from contract to closing has some pitfalls you’ll want to avoid. Once the appraisal is done and the title is deemed clear by the title company, the lender haws to prepare all their paperwork for closing. When they’re ready, the title company ...

Choosing a Homesite

Financing

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Finding Land

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Evaluating Land

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Negotiating for the Land

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Closing

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