What to Know Before Buying Land to Build On

Building a home on raw land offers the opportunity to create a custom living space. This complex undertaking requires extensive preparation. Unlike purchasing an existing home, acquiring undeveloped land involves numerous variables and challenges that impact a project’s feasibility and cost. Understanding these intricacies from the outset is important for success.

Understanding Property Characteristics and Restrictions

Before purchasing land, investigate its characteristics and existing restrictions. Research local zoning ordinances, which dictate permitted land uses like residential or commercial. They also specify minimum lot sizes, setback requirements, and maximum building heights, influencing what can be built. Consult the local planning department for this information.

Easements and rights-of-way can affect building plans. Easements grant others the right to use a portion of the property, such as for utility access. Identify these through a title search or land survey to understand development limitations. Restrictive covenants, common in planned communities, are private agreements dictating architectural styles, finishes, and landscaping. Review these Covenants, Conditions, and Restrictions (CC&Rs) to align with your vision.

Environmental considerations play a role in land suitability. Wetlands, flood plains, protected habitats, or soil contamination can impose development restrictions or require costly mitigation. Environmental consultants can identify such concerns early through assessments like a Phase I Environmental Site Assessment. Understanding the land’s topography, including slope and drainage, is also important.

A geotechnical survey, or soil test, determines soil composition and stability. This test reveals if the soil can support a foundation and identifies issues like expansive clay or rock formations, which may require specialized solutions. Professionals like land use attorneys, surveyors, and environmental consultants provide expertise in interpreting this information, guiding suitability decisions.

Assessing Infrastructure and Utility Readiness

Evaluate the availability of essential infrastructure and utilities. Access to a reliable water source is key; determine if public water lines are available at the property boundary and their connection costs. If not, consider the cost of drilling a private well, including estimated depth, water quality testing, and permits.

Sewerage options require investigation. Verify public sewer lines and their connection fees. Without public sewer, installing a private septic system is necessary. This involves percolation tests, septic system design, and permits, along with maintenance requirements.

Consider electricity and gas service availability. Identify power line proximity and estimate the cost of bringing electricity to the building site. Assess natural gas line availability versus reliance on propane, impacting setup and long-term utility expenses. Telecommunications, including internet and phone service, also require assessing available options and installation costs.

Evaluate the type of road access. Whether served by a public paved, gravel, or private road affects accessibility, maintenance, and costs. For private roads, understand any existing maintenance agreements or shared expenses. Contact local utility providers and municipal departments for information on availability, connection processes, and estimated costs.

Comprehensive Cost Analysis Beyond Purchase Price

Purchasing raw land involves expenses beyond the initial acquisition price. Site preparation costs include clearing, grading for drainage and level pads, and excavation for the foundation. Depending on terrain, additional expenses for retaining walls may arise.

Utility connection and installation fees are another cost category. These include fees for connecting to public water and sewer, or expenses for drilling a well and installing a septic system. Bringing electricity and gas lines to the building site, with trenching, also contributes. Costs vary widely based on the property’s distance from existing infrastructure.

Permit and impact fees are expenses levied by local governments. These include building permits, zoning permits, and specific permits for septic systems or wells. “Impact fees” or “developer fees” may also be assessed to offset the burden new construction places on local public services. These fees can be thousands or tens of thousands of dollars, depending on jurisdiction and project scope.

Professional service fees are part of the budget. Engage land surveyors, geotechnical engineers for soil testing, and architects and structural engineers for design. Environmental consultants or land use attorneys may also be required, depending on property conditions or regulatory hurdles. These services are important for a safe and compliant build.

Property taxes on raw land increase once improvements are made, reflecting the developed property’s increased value. Secure builder’s risk insurance during construction to protect against unforeseen damages. Allocate a contingency fund, 10-20% of estimated project costs, to cover unexpected expenses.

Securing Financing for Land and Construction

Financing raw land acquisition and home construction differs from a traditional mortgage. Lenders view raw land as higher risk, leading to higher interest rates and larger down payments for land loans. These loans are for undeveloped parcels and may have shorter terms.

Construction loans are short-term financing, providing funds in stages, or “draws,” as milestones are met. The approval process is rigorous, requiring detailed building plans, a comprehensive budget, and contractor information. Interest is paid only on the amount drawn during construction.

A convenient option is the construction-to-permanent loan, combining construction financing and the long-term mortgage. This simplifies the process by requiring one closing, saving on costs and paperwork. Once construction is complete, the loan automatically converts into a permanent mortgage with standard payments.

Applicants for land and construction financing must provide documentation. This includes financial statements, credit history, a land appraisal, building plans, and contractor bids. Lenders assess these to determine financial capacity and project viability. A significant equity contribution or down payment is required, often exceeding percentages for existing homes, reflecting increased lender risk.