Every house was once a piece of land on which someone decided to build. Yet despite this simple fact, buying land isn’t easy or straightforward.
If you envision creating your custom dream home on a perfect plot, learn the rules and know the potential pitfalls. Getting a mortgage for that dream home might be more difficult than you anticipated!
Land buying basics
Land has intrinsic value—as the saying goes, they’re not making any more of it. But because it’s not an endless resource, land use is regulated by layers of local codes, and state and federal restrictions that dictate how you can use it—and thus what it may be worth. By contrast, existing homes have already jumped through those regulatory hoops and are likely “grandfathered,” which means new (and stricter) zoning rules don’t affect them. In other words, don’t assume you can build a house like the one next door.
Regulation isn’t the only challenge. Banks are generally reluctant to loan money for land because it’s too easy for buyers to walk away since they aren’t (yet) losing their home. Even if you can find a bank to make a land loan, expect to pay higher interest and a larger down payment than if you were buying a home. It helps if you have a good relationship with a bank.
Crack land buying code
Most cities and even small rural towns have zoning ordinances that govern land use, and you can look them up. Some areas might be set aside as open farm or woodland that can’t be subdivided into housing tracts. Other plots are zoned for industrial or commercial use; even if housing is allowed, you probably don’t want to live across the street from a future copper mine.
Tired of that long commute? Your goal to run a small business out of your house might not be allowed if the town restricts commercial activity. Often it’s possible to get a variance, meaning an exception to a zoning rule, but don’t count on it. Many towns are fighting sprawl by encouraging denser “Main Street” housing on land that has already been developed.
Local codes may also specify where structures can be built on the property, how tall they can be and how many can be built. For example, your plot may not be large enough to meet modern setback rules, putting your rambling ranch house too close to the road. Likewise, adding a guest house might be disallowed.
Consider the environment
Federal, state and local environmental rules limit certain types of development. Wetlands can be protected because they absorb rainwater and prevent flooding. If you’re hoping to chop down trees to enhance your view of the lake, think again: many waterfront properties restrict tree removal due to erosion concerns.
Plan for expenses
Bringing in utility lines can be expensive, and possibly a deal-breaker if you’re far from a road. Should you be off the town water and sewer grid you’ll need to drill a well and install a septic system. That requires enough land to keep the two separate, and soil with good drainage. Meanwhile, clearing and grading the land, building a driveway, and landscaping can cost tens of thousands of dollars before you even lay the first plank of your house.
Bottom line: Get help
Don’t let the potholes scare you away from navigating a land purchase. Instead, work with a real estate agent who has experience in land sales and can help investigate zoning rules. She may recommend you hire a land planner—a consultant who will sweat all the details and make sure your acreage measures up to your dreams.