Tired of Getting Outbid? Buy Land to Build a House!
by Becca Stewart - May 18th, 2022
Another rejection: the sellers went with an all-cash offer that could close in 14 days. There is just no way your military family can compete in this wild housing market. If you’re tired of getting outbid, it might be time to think outside the box. Here’s what you need to know about buying land to build a house.
Getting outbid: The frustration for military home buyers
Anyone who has bought or sold a home in the past two years knows it’s currently a seller’s market. Sellers have very little trouble: there are multiple offers to choose from, usually for more than asking price, and the house is under contract in a matter of days.
Buyers, on the other hand, are struggling. A tightening inventory shortage combined with high demand means most buyers face intense competition. (Watch our webinar about buying and selling in a competitive market to learn more).
Military home buyers face even more challenges. Often, we have a very short timeframe to house hunt. If we are outbid during that timeframe, it leaves us with few options. Military families are increasingly buying homes sight-unseen, simply to secure housing before they PCS to a new location. Others are giving up on house hunting altogether, opting to rent a home or apartment instead. In some cases, military families choose to live in an RV rather than continue with the seemingly endless stream of rejected bids.
But there is another option available to military families who are frustrated by the current housing market: buying land to build a house. It’s not an easy process, but it’s a viable option for military families wanting control of their home buying experience.
Buying land to build a house
It can be frustrating and discouraging to lose one house after another to a booming real estate market’s unrelenting bidding wars. That’s why some military families choose to buy property and build their own homes instead.
Buying land is a slightly different process than purchasing an existing home on an existing lot. But those with enough money in savings – and enough patience to oversee the process – can build the home of their dreams, all without worrying about losing yet another bidding war.
Vacant land comes in all shapes and sizes, in both rural and urban areas. Start by finding a real estate agent who is experienced in land purchases. Having an expert on your side will make the process much easier. Agents specializing in land purchases can guide you through the process, helping you understand the different types of land, tax advantages of each, and discuss your building options.
Legally, you can purchase land by yourself. But working with an experienced real estate agent will save you money – and plenty of headaches – in the long run.
Find a military-friendly real estate agent experienced in land purchases here. PCSgrades partners offer cash-back incentives to military and veteran families.
Deciding where to build
Buying property isn’t as simple as choosing a lot and building. There are many factors to consider before buying land to build a house.
There are three main types of land: raw, unimproved, and improved.
Raw land is completely undeveloped, with no roads or utility connections. This land is typically the most affordable to purchase but will be costly to develop. If you want to build a home quickly, raw land is generally not the best option.
Unimproved land is slightly more developed than raw land. It might have older structures like barns or primitive housing. Still, it doesn’t always have access to all utilities you’ll need to build a home like water, sewer, or electricity.
Unimproved land is slightly more affordable than raw land but will still require a lot of work to make it builder-ready.
Improved land is ready for the buyer to build. All utilities are in place, including a well or public water line, sewer considerations, and electric sources. These parcels might be called “lots” and require the least legwork before building can begin.
Improved lots are usually the most expensive properties to purchase, but buyers will have minimal development costs. Building can begin almost immediately after purchase, making improved land the best choice for buyers wanting to build and move into their homes quickly.
Financing the land
Financing options for buying land to build a house are slightly different from traditional mortgages. If you cannot purchase the property in cash, you will need to secure a “land loan.” Many lenders do not offer land loans. Those that do require large down payments (50% or more of the purchase price), especially if you’re purchasing raw or unimproved land.
Try contacting your local credit union or community bank if you need a land loan. You can also contact our network of military-friendly lenders to learn more about your options, including borrowing against the equity in your current home to purchase land.
Paying for construction
Once you have the land, the real fun starts! You will contact a builder or general contractor who can help you design your ideal home. Then, construction begins.
You must have enough financing to cover the entire project. Most military families do not have enough cash on hand to cover this expense. Therefore, you will need to secure a construction loan. These are short-term loans with relatively high interest rates covering everything from design to construction and appraisal. Borrowers can then convert this construction loan to a traditional mortgage once construction is complete.
Contact a trusted lender to learn more about construction loans.
How long does it take to have a home built?
The short answer here is: it depends. Home construction can take anywhere from six months to two years, depending on your location, the builder, the lot type, and other factors. Right now, many builders are facing labor and supply shortages, leading to longer build times than usual.
However, new builds in established neighborhoods will likely take just as long. Buying land and building a custom house guarantees you will have the layout and finishes you want, just the way you want them.
Plus, if your lot is large enough, you might be able to live in an RV or other temporary building on the property until construction is complete.
Buying land to build a house isn’t for everyone. But for those who are tired of getting outbid in this competitive housing market, buying property could be the best bet.