Your Dream House Needs Dream Land: Tips for Buying the Perfect Building Lot—Part 2
Part 1 of Your Dream House Needs Dream Land: Tips for Buying the Perfect Building Lot covered title search and insurance, zoning and deed restrictions, essential services, surveys, and easements (read Part 1 here). Now in part 2, we will discuss some further tips on issues to consider when purchasing land.
Remember that buying raw land is more involved than buying ready-to-build land or a lot within a subdivision, and here we touch on some major but often overlooked issues in such a purchase. Buying within a development is more straightforward because the developer most likely addressed most or all of these issues already. In any case, make sure you have an attorney review all paperwork before closing on property.
Purchasing raw land away from metropolitan or even suburban areas can be more complicated than buying developed land (Plan #120-1247).
What Do You Own?
Cuius est solum, eius est usque ad coelum et ad inferos is Latin for "whoever owns the soil, it is theirs all the way to Heaven and all the way to Hell." What it means, of course, is that a landowner is presumed to have ownership over all aspects of his or her land, from aboveground to as far as one could go belowground. This was common law practice for centuries in England and influenced American legal thought—but with important modifications over the years.
These days, think of your land as having three levels, sub-surface, surface, and above the surface, and each can have separate ownership!
Each state has different laws, and it is vital to understand what rights you have when purchasing land. Mineral rights are important and have implications for the long-term future of your property ownership. You may be buying just the surface rights, and the mineral rights may not be yours. The previous owner may have sold them to a mining company at some point in the past. The implications of that are huge—years down the line, for example, the company may choose to begin drilling as part of the exploration of your property. And it will be legal.
Even if your mineral rights are intact, the impact of a neighbor’s sale of mineral rights can affect your property—sometimes drilling actually crosses property lines underground. Some states have laws that ensure that profits are shared; others may not.
Mineral rights entitle a person or organization to explore and process the rocks, minerals, oil, and gas found at or below the surface of a tract of land. Modern technology enables drilling to go from vertical to horizontal to exploit nearby minerals. This is especially true in states like Pennsylvania, New York, and West Virginia, where fracking is popular.
Another issue is that the after-effects of extraction of minerals (which may go beyond just oil or gas) may not show for decades when your heirs may have to deal with cleanup, despite what the contract said. This may be case if the company is no longer in business, for instance.
When you buy open, rural property you need to be aware of land rights such as mineral rights (Plan #142-1133).
It is possible to buy land but not the right to own the trees on the property. Check to be sure that there isn't a standing timber contract on the lot. Such contracts can be for a specific period of time or in perpetuity (essentially, forever), or they can be limited by the type or size of tree that will be harvested.
That majestic oak you want to shade your porch or the beautiful grove of evergreens that provides such coveted privacy may be hauled off. Needless to say, this is something you probably don't want to get into. In some cases you can buy back the timber rights if you are in love with a property and don't want to walk away.
When you purchase wooded property (top, Plan #141-1134 , and above, Plan #160-1015), make sure the timber rights have not been sold so you can maintain your privacy and avoid an unpleasant surprise down the line.
There is a third and final "level" of your property. Previously, you might have thought that all of the "levels" are sold together, but by now you can presume that the air itself may be "owned" by someone else, i.e., the government. What this means is that there is a limit above which you cannot build. Typically in the U.S., up to 500 feet of air space above a property is considered that of the property owner. Rights to anything above that must be obtained by special permission of local, state, and/or federal government.
Local zoning laws can contradict the air-rights principal, however, and may be used to protect the views for neighbors or preserve the look of a community. Zonging laws can be appealed, but there must be good reason, and it can be a long, involved process.
Local zoning laws intended to preserve views or protect the appearance of a community may override normal air-rights parameters on your property and preclude your building a large, tall home like one of these (top, Plan #130-1017; above, Plan #130-1107).
Of huge importance is how you will buy the lot for your dream home. Financing a land purchase may be a bit more difficult than buying a home because lending institutions want collateral that they can easily liquidate to cover the liability of the loan. Selling land is usually more diificult for the bank than selling a house. One novel approach is "seller financing," or working directly with the seller of the land. This can make sense for you, the buyer, as some of the usual fees are excluded in this seller financing. The financial proofs and hurdles required can also be a bit less.
Not ready to build:
Raw land without any upgrades is harder for the bank to sell if you can't make payments. So it should not be surprising that undeveloped land is the hardest to finance: you will need a land, or lot, loan, which will require a down payment of between 25 and 50 percent.
Typically terms are shorter and interest rates higher for undeveloped land because this type of loan is viewed as so much more of a risk by the lender.
The less ready the property is to have a home built, the less desirable it looks to a bank. So if you are in a subdivision with roads and other infrastructure in place, it is easier to get financing, even if your particular lot is not yet "build ready."
Ready to build:
A loan for land that has been approved for builing (with soil and septic tests perfomed and passed) is easier to finance in the form of land loan. There will likely be a period of time (up to several months) between when you purchase the land and you have house plans and a builder ready to construct the house. Once you are ready to move forward with erecting your home, you should secure a construction loan. The land loan is then paid off once the construction loan is in place (that is, the land loan is essentially absorbed by the construction loan). You should have a clause in the land loan that if you are not able to get the construction loan, you do not have to move forward.
Have your house design and plans in hand and approved by the local building department before applying for a construction loan. You will also need to have a contractor or builder ready, as you will have to present a budget to the bank.
For rural land this process may a bit more complex, as you will be pulling together more elements (plans, approvals, contractor, and possibly sub-contractors and their schedules, etc.). But if you choose to buy within a development or planned community, the plans and builder might be part of the package choices.
Once you've made the perfect land purchase, you will be ready to erect the house of your dreams, so stop dreaming and start building!
Footnote: The lead (upper) image in this article is from a two-story, four-bedroom Tuscan-style home. For more details, view Plan # 117-1093.