How to Build a House: Step 1- Buying Property

It was in the middle of 2013 when I finally convinced my husband to move from the tiny outlying town we had been living in for seven years and finally relocate closer to jobs, shopping and activities. The screaming and fussing of two small children during the 45 minute one-way drive to and from town and down an 8-mile canyon could have possibly helped my case. (Thanks boys!) His capitulation was marred by one caveat though- he wanted to build our house. He insisted that "we" would never get what we wanted unless we did it ourselves. Fine, I thought to myself, just get me out of this place!

So we began searching for property. One thing to keep in mind if you want to buy a house is that you are definitely going to need some cash down. How much depends on how you go about building. For some people who get started right away they can put as little as 10% down on the construction and land loan combined. We, however, decided to buy raw land first and hold onto it for a year. We did this because at the end of the year the bank would give us the equity in the property and treat it like cash towards our construction loan. We needed this- and it was a good way to go at the time with property values rising. More on this later.

We drove all around town looking at parcels, comparing numbers and debating flat vs sloped lots. Finally we found a piece on a creek, a little ways up a small canyon that looked peaceful and perfect. Our offer was below the asking price, but building still hadn't picked up so we thought it reasonable. Apparently we were dead wrong and our offer was squashed flat like a bug. We moved on to other things.

Shortly before a weekend trip we dragged the kids out to look at a 1.12 acre piece we found on Zillow. A sloped lot with a shared driveway we could see what had kept it vacant. But, circumstances and coincidence collided well, my husband is a heavy equipment operator by trade and the neighbors we shared a driveway with were my old co-worker and her husband who was an attorney at the firm I worked at. We put and offer in at the same time as a developer and our offer was accepted.

Next came the lovely process of underwriting. Land loans are generally more risky and banks charge accordingly. We paid $15,000 down on the property- which was 25%. This seemed to be the general range when I shopped the three local banks that did land loans. Buying raw land does cost a bit of cash- but it was worth the upfront cost to us. That's because, like I mentioned earlier, the bank gave us the equity in the property and treated it like cash on our construction loan after we held on to the property for a year. Here's a breakdown for you.

$86,000 amount property appraised for

-$45,000 amount of loan

$41,000 equity in property at time of closing

That's $41,000 towards our down payment for our construction loan. Each person has to assess their individual situation of course but for us, waiting a year was well worth the money we would get towards the construction loan.

Underwriting can be very scary for these types of loans. You must have pretty decent credit and they even went so far as to contact our postmaster to verify our P.O. Box after a "fraud" alert had come up because we had used the same P.O. Box for our business. It can be tiring. But if you really want to go through with the process this is truly only the beginning.

There are many things to consider when buying raw land. Here are a few to start with:

1. Is the lot flat or sloped? A flat lot will cost you less in excavation. Unless you are a tradesperson like my husband or know someone who can do this for you excavation can be very expensive. For example, our lot is fairly steep in slope. My husband had to build a road in and move many yards of dirt to excavate the house site. If we had paid for this it would have cost upwards of $20,000. Also, the slope of your lot dictates your house plan. A sloped lot is great for a daylight basement plan- which we are building. It could accommodate a rambler but the size would be limited and not put to best use.

2. What is the area I am buying in like? Location, location, location is always a real estate mantra but is super important when buying land. The location of our property was in a HIGHLY desirable area which was the reason we had $41,000 in equity on closing. This can really help you if you decide to use that equity like we are. Also, make sure the area fits the kind of house you want to build. A fancy house will be devalued in a lower valued area and you most likely won't even be able to build a cheap house in a fancy area because CCR's often have limits on size and materials.

3. Speaking of HOA's and CCR's- can you handle them? We bought in a neighborhood with a homeowners association and covenants. We felt they were reasonable and that we could handle them, but make sure that you thoroughly read any associated with a lot you like because discovering a rule you can't live with after a purchase is a real slap in the face.

4. Is this really what you want to do? This is a LONG process and you are just getting started. Make sure you and everyone else involved is in it for the long haul.

If you are interested in learning about how to begin actually building your dream home on your newly acquired land stay tuned- you can follow along our journey of home design from initial emails to actual, real plans!

(Disclaimer: I am not a banking or construction professional. I am just a regular person writing about her experiences with home building. Any advice given is anecdotal in nature and you should always consult with a banking and/or building professional before seriously embarking on building a home.)