6 Financial Tips for Buying Land for Your Homestead
Whether you want to homestead or just have a spot of Earth to call your own, buying land is something that requires patience, preparation, and care. We bought 16 acres to build a cordwood house off of the electrical and water grid, and in doing so we learned a LOT about what to do and what NOT to do. Here are our biggest FINANCIAL tips for those wanting to buy land for their homestead.
In 2014, our little family of three was living in a fairly normal mid-century ranch house in the middle of the suburbs.
We liked our house, but always wanted to be back in the country where we belonged. After years of dreaming and getting ourselves out of debt, we decided to follow through with our dream of building a house out of cordwood masonry with our own hands.
This required a lot of research and patience on our part, so if you’re looking at buying land and building a home of your own, here are our best FINANCIAL take-aways from our experience with buying raw land.
1. Lending rules are different for unimproved land vs. land with a house on it.
If you are planning to take out a mortgage to buy your land, you will likely need to work through a lender that specializes in land purchases. MANY BANKS WILL NOT LEND FOR UNIMPROVED LAND OR RAW LAND OVER 2-5 ACRES. This may vary by location, so make sure you check with the banks and lenders in your area first! This is typically because when land has a house on it, the house can be used as collateral in the case of a default. Raw land doesn’t provide the bank with any collateral, so they typically won’t risk lending for it.
We used Farm Credit Mid-America for our land loan and are happy with the terms we have and the customer support we’ve received thus far. There are other lenders out there and, again, this may vary by location, but we did have a hard time finding many lenders who will work with people buying raw land for a homestead.
Related: Check out these books on Amazon for more information about buying and developing land.
2. If you get a mortgage for your land, your down payment will be higher.
Again, this goes back to the risk the lender is taking on your land purchase. With a house, you can get a down payment as low as 0%. With land, requirements are anywhere from 10-50% of the purchase price! That means you’d have to put down up to $30,000 on your $60,000 piece of land. Again, this varies by location and is dependent on your personal credit score, so find lenders near you and ask them lots of questions!
3. Land sometimes comes with “baggage”.
Like houses, raw land can sometimes come with interesting issues that may need resolution before you purchase. In our experience, the land we ended up with had an issue with the mineral rights having been sold by a previous owner. We were able to resolve it fairly easily, but it just about ruined the entire purchase. Issues to look for include (but are not limited to):
- Mineral and water rights
- Outstanding liens
- Easements through the property
- Deed restrictions
Check with the county clerk’s office, the seller’s real estate agent (if any), or your real estate agent (if any) for additional details. Ask an attorney if you encounter any issues like these in the course of your purchase.
4. Draft a hypothetical future budget based on the potential cost-of-living for each parcel.
You will probably have a few parcels on your short list that meet your needs and wants. Draft hypothetical future budgets based on the expenses you are likely to have for each parcel you’re interested in. Include things like fuel costs (constantly driving into town from a remote property vs. a property closer to town or near an accessible route), utilities (if attached to the grid), off-grid utilities (cost of solar, gas for generators, propane, water, internet options, etc.). Seeing your probably expenses laid out can help you weigh the pros and cons of each property more easily.
Make sure you look at the property taxes for each piece of land too! This gets forgotten so often and can have a big impact on your budget. In our area, anything over 10 acres is eligible for a farm exemption. That took our taxable value down from $55,000 to $6,000, which meant that last year we only paid a whopping $24 in property taxes! That will definitely go up when the house is completed, but the discount sure is nice! Check with your local Property Valuation Administrator to be sure.
5. Evaluate how much it might cost to develop your land and how much you can realistically DIY.
Here are some of the scenarios we actually looked at when we were searching for land:
Property 1 – $55,000: 25 acres with water and electric service, but very far from town and absolutely covered in hardwood trees with no readily buildable spots and no chance to build with passive solar principles, no suitable trees for cordwood building
Property 2 $45,000: 5 acres with water and electric, a graded spot for building (primed for passive solar), and a mobile home (required extensive plumbing work) but the property was all one wooded hill with no area for hunting or gardening, no suitable trees for cordwood building
Property 3 $50,000: 11 acres with an adorable cabin that was unfortunately built without permits (don’t do that!!), nice land but poor passive solar siting and not enough suitable trees for cordwood
Property 4 $60,000): 16 acres with no water or electric and a very long driveway, but with adequate building space to use both passive and active solar, quick access to water and to town without being too close, many suitable trees for cordwood building
Property 4 is the one we ultimately purchased. It has cost quite a bit to get from raw land to building-ready, but it has kept the pace with our hypothetical budgets. It was also the only property that we felt at home on when we were looking. You’ll get a feeling about each property you see, and that matters! Home isn’t just about the numbers, so weigh those feelings against the numbers when you’re evaluating your purchase.
6. Determine your living arrangements for after your land purchase and work it into your budget.
If your land has no house on it and you intend to build, your potential living situations include:
- Living in your current house (if you didn’t have to sell it in order to purchase your land)
- Living in temporary housing on your land (travel trailer, mobile home, tiny house, etc.)
- Living with friends or family
- Renting an apartment or house
Figure out exactly where you will be staying and determine the monthly and/or up-front costs. Then do up a hypothetical budget including your temporary housing AND potential mortgage costs (if taking a mortgage). Determine which monthly bills you are still likely to have and which ones you won’t. Estimate amounts to the best of your abilities and evaluate the feasibility of your plans.
So often when we dream about buying land or homesteading we get so wrapped up in the dreaming part that we forget about the practical and financial realities of buying a property. Dreaming is great! I have entire Pinterest boards devoted to what I’m going to do with my home and gardens when they’re done, but I can’t stress enough how important it is to go into a land purchase with eyes wide open. Do enough research about your purchase options to ensure you make the best possible choice for you and your family!
If you want to know more about our off-grid cordwood homestead project, click here. Be sure to join us on Pinterest, Facebook, and Instagram for more building and homesteading goodies that don’t necessarily make it to the blog. Thanks!