There are few things more exciting than building your own home, whether it be a custom design created expressly for you or a modern prefab house built with cutting edge technology. It isn't a complicated process, but it does require due diligence and a little legwork.
Whether you are looking for property in Marin County, the San Francisco area, California, or even outside of California there are some guidelines that will hold true regardless of the local real estate culture. Choosing a competent realtor to help guide you through the process is probably the first decision you should make.
Find the Right Parcel of Land for Your Custom or Prefab Home
After signing on with a realtor, your first step in building your dream house will be to find the right piece of property. Some of the conventional wisdom about buying a house holds true for buying land as well. You will want to consider the neighborhood. What conveniences are available? How about the schools? Where is the closest grocery store? Is medical care nearby?
If you are looking at property in a development or an already improved lot within an established community, you may find it to be more expensive than unimproved land, but you can be fairly confident that the lot is usable. Check the background of the developer and ask for warranty that the home site is buildable.
Unimproved land is generally less expensive and may offer more flexibility in the type of home you build, as well as the size and placement of your home. You may have to spend extra money, however, to provide access and utilities.
Do your homework before you purchase.
Make sure the land is buildable:
Soil composition - Is the soil suitable for building? Although most soils aren't a problem, some require beefed-up foundations or other special consideration.
Drainage - Is the land in a low laying area or flood plain?
Topography - Is the land on a steep hillside or some other difficult building circumstance?
Access - Will building equipment and supplies be able to access the building site?
Utilities - Are water, electricity, phone, and sewer hookups available? If not, will it be feasible to bring electricity in? In addition you will need a well and septic system. How deep will the well need to be? Can you have a standard septic system or will engineering be required?
Be aware of encumbrances, including:
Easements - An easement can be public or private, and include rights-of-way, utilities, and, occasionally, views.
Restrictive covenants - These can restrict use of the land and may include zoning or use restrictions, deed restrictions, building envelopes, and CC&R's.
Building moratoriums - Be sure you can build. Some areas restrict or suspend the number of building permits issued.
The Budget for Purchasing and Building on Undeveloped Land
One of the most common mistakes people make when buying property is not factoring in the cost of the building process. Land cost shouldn't exceed about 25% of your overall budget, unless you are considering an exceptional piece of property such as one with an amazing view, a waterfront parcel, or a highly desirable neighborhood.
Financing bare land can be a bit trickier than getting a loan for an existing house. Typically, as there is no collateral, you may be expected to make a higher down payment as well as pay a higher interest rate. If you have purchased improved property or have immediate plans for construction, a loan might be easier to find.
Sources for funding include:
Home equity loan
Your credit union, a community bank, or a land loan obtained through a mortgage broker
A loan package that will cover the cost of both the land and construction
Financing offered by the seller
The Bottom Line
Buying land and building a custom or prefab home is a little more complex a process than purchasing a home that is move-in ready. The end result, however, is a home that suits your needs and taste and was built with you in mind.
