Buying Land for a Home: Pros and Cons

Owning a plot of land is a dream that many strive towards. At first glance, it offers a host of benefits and opportunities. But is it the right move for you? In this guide, we’ll look at both the advantages and disadvantages of buying land for a home.

Pro: You Can Build Your Dream Home

This is by far the best incentive to buy land and build your own home. Buying land helps secure the spot you want for your house, and when it comes to building and design, you can let your creativity go in any direction. Provided you comply with local zoning and building laws, of course.

Building a house from scratch also allows you to put in energy-efficient systems or, if you want to go all out on being eco-friendly, even build a home that’s completely off-grid. Also, if you are licensed to act as your own general contractor, you may find that building your own home can be cheaper than buying one.

Con: The Process Requires More Research

If you plan to build a house, the list of things to do before laying the foundation can be surprisingly long. Finding an architect and contractors is just the tip of the iceberg. You will need to conduct soil tests, check local building codes and zoning regulations, obtain building permits, and make sure that you have access to underground utilities.

Encroachments can be a real problem with vacant land, same as boundary disputes. Always get a land survey to confirm that the surface area listed corresponds with what you’re actually buying. Also, you’ll need to make sure that you have access to the land via a road that’s not on private property.

Pro: Diverse Investment Opportunities

Both land and buildings are fantastic real estate assets. But when it comes to investment opportunities, land can be more versatile. Depending on how you plan to pursue things, you can buy a vacant lot and start building a house as soon as you have all your approvals in place.

Or, if you’d rather pace yourself, you can keep the land vacant, then resell it for a higher price several years later. Vacant land requires significantly less maintenance than a house, and while properties tend to depreciate over time, land tends to appreciate in value.

Con: You May Have More Options in Rural Areas

A vacant lot located downtown is a prized piece of real estate. Even in the suburbs, especially in up-and-coming areas, you may find yourself competing with developers, investors and other homebuyers.

As a result, you may have better luck looking for land in rural areas. This shouldn’t be a problem if you work remotely, but if you have a family with kids, the lack of local amenities such as schools or playgrounds can be challenging. However, buying rural land can have its pros:

Pro: You Can Qualify for a USDA Loan

The construction loan guaranteed by the U.S. Department of Agriculture offers financing opportunities for homebuyers looking to build a house in rural areas. This is an excellent avenue worth pursuing, especially if you plan to build a home that will be your primary residence.

The fact that a USDA mortgage does not require a downpayment is a major plus. Yet, you’ll need to meet USDA’s loan requirements for location, credit score and debt-to-income ratio, maximum income limit, and working with a USDA-approved contractor.

Con: Getting a Conventional Loan May Be More Difficult

Lenders will always prefer using tangible assets as collateral. And when it comes to loans, land is considered a riskier investment than a house that’s already in place. As a result, some conventional lenders may not even provide land loans, and those that do may have stringent requirements in place.

The lender may require a better credit score and debt-to-income ratio than for buying a house. Down payments and interest rates may also be higher as a result, and some lenders can even set a repayment period as short as two years.

The Middle Ground: Consider a Teardown

If you’re still trying to choose between buying land for a home and buying a ready-built house, a teardown can be a great middle-ground. This option is worth considering if the market for vacant land offers few options in your area or if you’re prospecting an old house that would cost a fortune to renovate.

One of the benefits of a teardown property is that access to utilities such as plumbing and electricity is already in place. Also, given that a residential building is already there, you’ll spend less time checking local laws than you would with a vacant lot.

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