Owning land is part of the American dream. This does not mean that this is the right move for everyone. Here are the advantages and disadvantages of purchasing land for a home.
Here are three reasons why purchasing land would be a great idea.
You Can Build Your Dream Home
Who wouldn’t want to build their dream home? Purchasing land gives you the perfect opportunity to do this. Your home can be exactly the way you want it (provided the home plans comply with local zoning and building laws). If you are licensed as a general contractor, then building a home will be a whole lot cheaper than purchasing a new construction home.
Diverse Investment Opportunities
Residential real estate is still a smart investment. Land and buildings are great real estate assets but the land is more versatile for investment opportunities. You can purchase land and sit on the vacant lot and resell it for higher price years from now. The land has little maintenance and appreciates over time with little done to it.
You Can Qualify for a USDA Loan
If you purchase land in a rural area, then you are able to qualify for financing with a construction loan guaranteed by the U.S. Department of Agriculture. This is perfect if you are going to build your primary residence on this land. Another plus is that a USDA mortgage will not require you to have a downpayment.
There are however several reasons why this would not be a good idea for many.
The Process Requires More Research
Building from the ground up can be a daunting task with a litany of things to do before you even break ground. You not only have to hire an architect and a contractor but you have to conduct soil tests, check local building codes and zoning regulations, obtain building permits, and make sure that you have access to underground utilities. Be sure to obtain a land survey to confirm the surface area you are purchasing. You do not want to have a dispute about your land’s boundaries.
You May Have More Options in Rural Areas
A lot downtown is worth a lot more than a lot in a rural location. In sought-after locations, you will be bidding against developers, investors, and other homebuyers for land. You will have better luck and more opportunities to purchase a piece of land in rural areas. This would not be ideal for a family with kids that need local amenities.
Getting a Conventional Loan May Be More Difficult
A lender will want to have tangible assets to use as collateral. Lenders look at land as a riskier investment than a home that is already standing. If a lender will give you a conventional loan, there will be very strict requirements. Some of these requirements might be a better credit score and a better debt-to-income ratio than if you were purchasing a home. Lenders might require a larger down payment and higher interest rates with a shorter repayment period.
If you are in between on whether to purchase land or a ready-built home, then a teardown might be right for you. A teardown will already have access to utilities and you will not have to spend as much time with permits as you would on a vacant lot. Check with your local Realtor who can help you choose the right path for you.