Steps to Building a new home in Maryland
Steps to Building a new home
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Buying Land to Build a Home: Feasible and Full of Options
Some of you are considering buying land to build your dream home. Whether you're looking at a small lot close to town or a sprawling acreage in the country, you'll find that buying land and building is more feasible than you might think. There are plenty of options for finding land, purchasing it, and building your house. It's essential to understand that each county has its own requirements, which can vary significantly. Checking with local municipalities is crucial for understanding the procedures and requirements specific to your area.
For example, in Maryland, home builders must register with the Consumer Protection Division before they can enter into a contract for constructing or selling a new home.
Step-by-Step Guide to Buying Land and Building Your Home
1. Speak to a Lender
o Determine your budget first. Consult multiple lenders to understand what you can afford, keeping in mind that some lenders may not offer land loans.
2. Assemble a Professional Team
o To find the perfect piece of land and understand what you can or can't do with it, assemble a team of professionals. This team should include Realtors, Architects, Land Engineers, and Legal Experts.
3. Consult Local Authorities
o Contact your local municipal County planning office for information about any land you plan to buy. They can provide details on zoning, history, potential hazards, and future developments in the area.
Types of Land
• Developed Land: Land with ready access to utilities such as water, sewer, power, and gas lines. Permits for this type of land can be obtained more quickly.
• Raw Land: Undeveloped land with no utilities or even a road to the property. It is less expensive but requires significant time and cash to develop, involving extensive dealings with local municipalities.
• Unimproved Land: Slightly more developed than raw land, with some utility access or a well.
• Shovel Ready: Land that is advanced enough for building to begin soon, requiring only a soil test before starting the foundation.
If your lot is already zoned for your intended use, you're ahead of the game.
Financing Options
• Construction-to-Permanent (CP) Loan: This combined loan allows you to finance both the land purchase and home construction. It often requires a smaller down payment and has a lower interest rate, making it a common choice.
• USDA, FHA, and VA Construction One Time Close (OTC) Loans: If the land is in a rural area, you may qualify for a USDA construction loan, intended for low- to moderate-income individuals. These loans cover the cost of the lot, construction, inspection fees, and other costs. They come with strict guidelines regarding what constitutes “rural.”
• Lot Loan: These loans finance land purchases without immediate plans to build. They are considered riskier, require larger down payments, and come with higher interest rates. Local banks or farm credit unions are more likely to offer these loans.
• Owner Financing: For some For Sale By Owner (FSBO) properties, the seller might offer to finance the purchase directly. While down payments are typically lower, interest rates are usually higher.
• Cash Payment: The no-financing option is to pay cash for the land, avoiding loans and interest altogether.
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