Buying a Lot Question

[DSMCy]

I have a question for anyone that’s bought a lot and built a house.

I’m looking at a future development and have had some very initial discussions with the owner.
My plan is to buy a lot next year, but not build for another 3-4 years.

So here’s the question: When doing my budgeting, how do I think about the cost of the lot in relation to the house I build, or are they completely separate?

For example, if the lot is $50K and I want to build a $400K house, would my mortgage be for $350K or $400K? Like when I’m looking at $400K homes on Zillow, and I want to build something comparable.
Note, I’ll have the lot paid off before building.

I’ve obviously never built before so just curious how this works.

 

[trevn]

I have a question for anyone that’s bought a lot and built a house.

I’m looking at a future development and have had some very initial discussions with the owner.
My plan is to buy a lot next year, but not build for another 3-4 years.

So here’s the question: When doing my budgeting, how do I think about the cost of the lot in relation to the house I build, or are they completely separate?

For example, if the lot is $50K and I want to build a $400K house, would I pay the builder $350K?
I’m assuming I’ll have the lot paid off before building.

I’ve obviously never built before so just curious how this works.

Is the builder financing during the construction phase or are you?

 

[DSMCy]

Is the builder financing during the construction phase or are you?

I’ll pay cash for the lot or possibly a land loan through my credit union.

During construction, I assume I’ll do a construction loan and then convert to a mortgage.

 

[Cyforce]

I have a question for anyone that’s bought a lot and built a house.

I’m looking at a future development and have had some very initial discussions with the owner.
My plan is to buy a lot next year, but not build for another 3-4 years.

So here’s the question: When doing my budgeting, how do I think about the cost of the lot in relation to the house I build, or are they completely separate?

For example, if the lot is $50K and I want to build a $400K house, would my mortgage be for $350K or $400K? Like when I’m looking at $400K homes on Zillow, and I want to build something comparable.
Note, I’ll have the lot paid off before building.

I’ve obviously never built before so just curious how this works.

I was a realtor until 2010 for 17 years. Traditionally the lot should be about 20% of the end value. I built my own house in 1998. Lot price was 30k final appraisal came out at 170k. Insurance agent estimated replacement cost over 300 this spring.. Best advice I can give is tour the houses going in that development and make sure they are inline with what you are wanting to build.

 

[BCClone]

Have built two and used to appraises houses (gave up license the end of June).

They are separate until you build. They become one then. When you own a house, the house and property are considered to be of value. A good lot is worth more than a tiny or crappy lot. So when the appraisal hits, they will consider it a package deal.

 

[TrailCy]

I work in RE development and where I am the lots are generally 23% of the total value after construction for a "normal" new house. They are separate until you start building the house. My expertise stops before insurance and construction details are discussed, but usually insurance covers the building portion. For example, my property is assessed at $400k and due to a fluke housing market both the lot and the land are each $200k. My insurance is $450k coverage which may be enough to rebuild on the same lot (which of course I don't need to pay with those proceeds).

My general advice is unless your house is in a unique location thay lends itself to customization (and not "pick the granite color!" kind), you may be better off buying a complete project from the developer.

 

[CLONER99]

I have a question for anyone that’s bought a lot and built a house.

I’m looking at a future development and have had some very initial discussions with the owner.
My plan is to buy a lot next year, but not build for another 3-4 years.

So here’s the question: When doing my budgeting, how do I think about the cost of the lot in relation to the house I build, or are they completely separate?

For example, if the lot is $50K and I want to build a $400K house, would my mortgage be for $350K or $400K? Like when I’m looking at $400K homes on Zillow, and I want to build something comparable.
Note, I’ll have the lot paid off before building.

I’ve obviously never built before so just curious how this works.

When you are done building, The bank would look at it as a $450k home purchase, and you already have $50k in equity or equivalent to “down payment”. Your construction loan would be converted to a traditional mortgage and you would be making payments on $450k less $50K lot purchase less any additinal money down. Zillow would assess your value at $450k +\- based upon market conditions. It generally ends up being valued higher than what you paid because you took on the risk and effort of the build versus buying something already complete.

Its a long and stressful process but in my opinion is worth it.

 

[cmjh10]

You are buying a lot of what?

 

[Clonedogg]

You are buying a lot of what?

Dang it you beat me to it.

 

[mynameisjonas]

When you are done building, The bank would look at it as a $450k home purchase, and you already have $50k in equity or equivalent to “down payment”. Your construction loan would be converted to a traditional mortgage and you would be making payments on $450k less $50K lot purchase less any additinal money down. Zillow would assess your value at $450k +\- based upon market conditions. It generally ends up being valued higher than what you paid because you took on the risk and effort of the build versus buying something already complete.

Its a long and stressful process but in my opinion is worth it.

That is incorrect. When he is done building the bank will look at it as a refinance of the existing balance of the construction/lot loan into permanent end financing. The valuation will be based on the appraised value, the cost to build will be relevant but not the determining factor of value.

 

[mynameisjonas]

Shop around for a decent builders with references and previous happy customers. And prepare to spend 10% more than you expect to.

 

[DSMCy]

Thank you all! Great information

One more question, I’ll rephrase slightly.

As I said, we’re thinking we’ll be around a $400K home.
So if I’m looking at homes currently for sale around $400K, in theory I’d be able to buy a lot and build a house for approx that same amount, and with similar home features/finishes, correct?

I know I’m making a lot of assumptions and simplifications, but am I thinking of this the right way?

 

[BCClone]

Don’t need to be quick either. Steel and lumber are going down. A slow down is coming, things should cheapen up.

 

[GoldCy]

Realize you may have maintenance costs on the lot. Even without codes/rules that might cover it, you don't want to piss off future neighbors

 

[DSMCy]

Don’t need to be quick either. Steel and lumber are going down. A slow down is coming, things should cheapen up.

Honestly, this is part of the reason we’re thinking 2-3 years out, but we want to secure the lot now.

 

[DSMCy]

Realize you may have maintenance costs on the lot. Even without codes/rules that might cover it, you don't want to piss off future neighbors

You mean before we build? Things like mowing, snow removal?

 

[CivEFootball]

Don't forget the HOA dues too if you are actually the owner of the lot.

 

[DSMCy]

Don't forget the HOA dues too if you are actually the owner of the lot.

Yah definitely keeping those things in mind as we get closer

 

[CLONER99]

That is incorrect. When he is done building the bank will look at it as a refinance of the existing balance of the construction/lot loan into permanent end financing. The valuation will be based on the appraised value, the cost to build will be relevant but not the determining factor of value.

Yeah, I know…but based on the original question I was trying to keep it as simple as possible. The concept remains the same.

 

[CLONER99]

Honestly, this is part of the reason we’re thinking 2-3 years out, but we want to secure the lot now.

Construction costs are not going to cheapen up on the aggregate. Certain commodities will, and costs will plateau….but they aren’t going to drop.