Buying land to build your new home is an exciting adventure! It’s also a more involved project than shopping for an existing home. From deciding where to buy, how much land to buy, and how to design your new house, a good starting point in the process will be to determine how to finance buying land to build a house. Let’s take a look.
How to Finance Buying Land to Build a House
There are a number of options to buy land to build your new home on. From cash to loan financing to seller financing, you have a few directions to investigate. If you are building your home yourself or hiring a contractor to construct your home, the financing types will also vary for you.
- Cash – This can be one of the easiest ways to buy land if you can make it work in your budget.
- Bank or Lender Financing – This option can have a handful of loan types to look at. Depending on the location you are looking in or what your building plans are, you could be looking at land specific loans, agricultural loans, construction loans, or a refinance loan on a home you already own.
- Seller Financing – The process can be similar to working with a bank or mortgage lender. You will want to work with a lawyer, however, as you follow the steps to close your purchase.
What is the First Step to Applying for a Land Loan?
First, you will want to look at your finances to decide if you would like to pay cash for your land purchase or if you would like to buy your land and build your new home with financing. Speaking with your bank or lender can give you direction on how to move forward.
Paying Cash for Land
If you decide to pay cash for your land, but you would like a loan to build your home, talk with your financing specialist about the options they provide. A construction loan would probably be a great loan option in order to build your new home after paying cash for the land. You might also be able to build when you are ready and not have a particular deadline to start your build like you may if you use a loan to buy the land. Speak with your county or city on the build requirements for the land you are considering buying.
Financing your Land Purchase
When you would like to buy your land and build your home with financing from a lender, they will offer you a number of loan types.
- Land or Lot Loan – This can be the perfect loan if you are buying your land, but maybe not building right away. If circumstances put your build a year or more out, consider getting a loan on just the land until your plan to build starts to materialize. You might have a choice of land loans also, depending on the types of land you are buying. From developed to raw land, the lender could have specific types of loans for these different types of lots.
- Construction Loan – Once you have your land purchased, you can get a construction loan to finance your home build. This type of loan will be a short-term loan to cover the cost of building your home. It will pay out as you move ahead with the construction and as the process passes inspections. After you have completed your loan, you can transfer the home into a traditional home loan.
- Construction-to-Permanent (CP) Home Loan or Single Close Loan – This can offer you the perfect type of loan because it can be a simple way to buy your land plus build your home and have a mortgage on the property without applying for 2 different loans. This type of loan can have a higher interest rate and demand a larger down payment to get started, but it can provide the easiest loan purchase combination.
- Seller Financing – As mentioned early, using a lawyer for this type of land purchase financing will bring together all the loan details properly. Each circumstance can be a little different as well, so having the guidance and advice from a legal professional can make this type of loan go smoothly. This type of financing can be a good option when buying land. Sometimes it can be difficult to get bank or lender financing because it is riskier for these institutions. Working directly with the seller might get you a higher interest rate, but a lower down payment.
Working with an Experienced Memphis Area Real Estate Agent
When it’s time to sell your existing home or buy a great new place, turn to a highly regarded and well-informed local real estate agent. You want someone that you can trust to give you the best advice and know-how for your new home purchase or sale. Check out my other great articles to help you through your home selling and buying experience here in Memphis. Staging homes for sale is also part of my expertise. Please ask me about it when you reach out.
Take a minute to learn more about me. With over 15 years of top-notch service for my clients, I can guide you with your house sale, new home purchase, or buying a great parcel of land. As a top, licensed real estate agent in the Memphis area, showing you the best properties for you and your family is my goal!
Contact me at (901) 828-8919 or drop me a quick note at firstname.lastname@example.org and we can speak in person about your plans and options. Ask me about seeing homes for sale by video or virtual tour and find the best place for you!
Angie Kelley, Crye-Leike Realtors
(901) 828-8919 or (901) 756-8900