What to Consider When Buying Vacant Land to Build Your Dream Home

Most buyers have a pretty thorough list of must-haves when shopping for that perfect home. Some may compromise on their list, while others aren’t willing to sacrifice a thing. For those with a specific idea in mind, building a custom home on a vacant piece of land may be the perfect option.

While this sounds ideal, buying land can be much more complicated than it seems. If it’s something you’re thinking about, here are just a few important considerations.

Work with an agent who knows vacant land
REALTOR^® Shelby Miller, with The Miller Group of Berkshire Hathaway HomeServices Tomie Raines REALTORS^®, has extensive experience with vacant land and says it’s a completely different process than buying or selling an existing property. Because of that, she strongly urges buyers to partner with a professional who really understands these transactions.

“There is a lot to consider with vacant land...zoning ordinances, easements, utilities, soil tests, site plan approvals, permits...the list goes on,” she said. “There’s quite a bit of due diligence involved, so you need to work with someone who knows the right contacts and will help you navigate the process from beginning to end.”

Know that financing may be a challenge
Most lenders see land loans as risky, so the approval process is typically more cumbersome than standard home loans, and they typically require a higher credit score and a larger down payment. Often, buyers pay cash for vacant land and then get a construction loan to build the home.

It is possible to get a single loan to buy the land and fund construction, but it depends on the type of land, how it will be used, and other qualifying factors. It’s best to sit down with an experienced lender before you get too far into your search, and your REALTOR^® can provide you with some reputable referrals.

Be prepared for a lengthy process
Buying raw land to build on isn’t something for those under a tight timeline. Once you find a potential plot, you’ll need to do some digging into its history and look into local zoning laws and how many splits a property has, which comes with restrictions about how much road frontage is needed for a home. 

Typically, you’ll also need important checks like a soil test, a geology report, and a land survey to identify the boundaries. And, while you expect access to running water, electricity and sewers when you buy an existing property, with vacant land these are not always a given. You’ll need to find out if the land is already serviced, or if there will be additional costs for infrastructure to be run to the lot.

Expect additional costs
Building exactly what you want on a perfect piece of land can also come with a hefty price tag. Chances are, you’re going to spend more money than if you bought an existing residence, so you need to be financially prepared.

“I think people underestimate the costs,” said Miller. “For instance, you might pay a couple hundred dollars for an inspection on a home, but with a piece of land you could be looking at a higher cost if surveys and rezoning come into play.”

And then there are the costs involved in preparing the land and, as mentioned previously, if there isn't existing infrastructure in place, those costs can quickly add up. For example, Miller has a client who needs a road brought in to service his piece of land, and he may need to pay the county $100,000 to make that happen.

While all of this information seems daunting, it’s not meant to scare you away from the idea. There are many benefits to buying vacant land to build a custom home, including the freedom to create the property you want. If it’s something you’re interested in pursuing, just know that due diligence, smart budgeting, expert guidance, and patience are critical for a successful transaction.

For a list of local real estate professionals who can help, visit the Greater Lansing Association of REALTORS^® at www.lansing-realestate.com.