How to Buy Land to Build a House

Buy Land to Build a House

There are two ways to approach new construction. Some home builders begin with a floor plan and then search for a lot that will fit the house. Other home builders find the lot and then have a house designed specifically to fit the land's terrain. The second method is common when purchasing land that may have an ideal location, yet the lot is sloped or needs special preparation or retaining walls.

Step 1

Remember the real estate cliché: location, location, location. Building costs will not go down if you choose to build in a less desirable neighborhood. While the cost of the lot will be higher in a better area, the price difference between lots will typically be far less than the added equity you will gain by building in a better neighborhood.

Step 2

Define what utilities are available to the lot. Utilities would include water, gas, electric, phone and television cable. Discover how close the service is to the property. While electric may be available, the cost of bringing it to the lot may be more than you imagine.

Step 3

Walk the lot, from the front to the back to get a feel of the terrain. What might seem like a level lot when looking from the street may actually be considered sloped and require additional grading. During the inspection period, have your contractor look at the lot and give you an idea of what it will cost to have the land prepared for construction.

Step 4

Order a percolation (perc) test, if the lot is not hooked up to sewer. This is to determine what type of septic system will be required. A perc test involves drilling holes on the property and monitoring how fast the water soaks into the ground.

Step 5

Request to have the corners of the lot flagged when making a purchase offer, or consider having the lot surveyed. This will not always be necessary. For instance, if purchasing land in a housing tract, surveying would not typically be necessary. But if you are purchasing land in a rural, open area, surrounded by vacant land, this may be necessary.

Step 6

Explore the financing options for purchasing the land. If there is a loan on the land, it will typically need to be paid off before you can obtain a construction loan, as lenders are reluctant to subordinate to a construction loan. Some home builders use equity from existing property to purchase land, and others work with lenders to find suitable construction loan packages.