How To Buy Raw or Vacant Land

Whether you are purchasing raw land for recreation, investment, or to build your dream home, the process can be simple or prove fraught with problems if you fail to do your due diligence. Follow these due diligence steps before you close on a plot of land.

Due Diligence Checklist for Land

1. Order a survey to confirm boundaries, and note any encroachments or easements
2. Confirm available utilities (electric, water, gas, etc…)
3. Test soil percolation for a septic tank if sewer is not available
4. Get an estimate for a well if public city or county water is not available
5. Review zoning to make sure the desired construction plans will be allowed
6. Analyze flood zone maps to be sure there are no special requirements
7. Quote any construction project with a builder to know the full cost to build
8. Seek approval for a land loan or construction loan.
   *Land loans are different from typical home mortgages and have shorter payback periods, which typically means higher monthly payments and often a balloon payment where the full amount is due in a few years.

Financing Land or Getting a Construction Loan

Path & Post Real Estate can recommend lenders for your land loan or construction loan. Terms are always changing for land and construction loans so we recommend speaking with a trusted lender prior to going down this path.

Land Loan: A typical conventional land loan for properties of 10 acres or less, with 25% down, would have terms that include a 20 year amortization schedule, and a maturity in 12-35 months. The full balance must be paid at the time of maturity.

Construction to Permanent Loan: This loan can include the land purchase, with a maximum loan to value (LTV) of 90%. This loan would have interest on the balance paid monthly up to 12 months during construction, then the loan is converted to a permanent loan upon completion of the home.

If the loan amount is greater than$484,350.00, the maximum LTV is usually 80%, with up to 18 months to complete construction in some cases.

This type of loan can be used for a primary or second home. Sometimes a bridge loan is done to pull equity out of a current home for the down payment on the new home.