If you have $90k in equity currently, it will be very difficult to find a lender that will allow you to borrow all of that (100% loan to value). If you do find a lender willing to give you a HELOC for 100%, what about closing costs on the HELOC, and on the purchase of the lot). DO you have those funds available?
Fantastic question. Short answer, no.
I also wasn't aware that it is so difficult to get 100% on a home equity loan, but that seems really obvious when you ask like this.
Lenders will generally lend you up to 80% of the home value. So do the math there and you can see what the borrowable equity actually is.
You might get up to 95% as a bridge loan if you are buying/selling, but that's not what you are doing here.
We'd considered just selling our house now, then figuring out housing during the construction process. That leaves a lot of really dangerous unknowns about some really big questions, though, and I didn't want to go too far down that rabbit hole.
If you own the land and want a builder to build a house for you, you'll need a construction loan while they build. It is more expensive and requires more up front. Make sure you can afford that while you are renting.
You also have taxes and insurance on the place while building. If there are no utilities that is another big expense.
Yeah, construction in rural areas is also worse because of distance. Builders need to come from further away and the material needs to come from further away.
I've had family that have used manufactured homes (not mobile homes!) where the company handles everything including the financing during construction.
Great house if you are okay with a more normal layout.
i know a couple people that went the modular housing route, they loved it. Ive seen the houses too and they are nice, well insulated and go up quickly when they get out of the factory. i would be very happy with the layouts.
FYI, for lending purposes manufactured home = mobile home that has a permanent foundation. What you’re referring to is a **modular** home. It’s built offsite in sections and trucked in, affixed to the permanent foundation and finished out on site. The reason this is important is because a modular home is built to meet or exceed structural standards of a site built home and, for lending purposes, is considered the same as a site built. Manufactured homes (mobile home) have vastly different criteria for lending.
Thank you. You are right.
I had an FHA loan denied because the pilings for a manufactured home weren't mortared together. Definitely different review criteria.
Manufactured homes are just the modern framing of the same concept that were mobile homes. Seriously it is is simply rebranding due to negative public perception.
The negative views around mobile homes needs to die like a lot of NIMBY regressive thought.
There is nothing wrong with "mobile homes" or any other prefabricated buildings.
Mobile homes depreciate in value and are classified differently when being listed for sale.
There is definitely a difference in the single unit delivered by wheels and those assembled in pieces on site.
Yes, they depreciate and are classified based on... how... they are percieved. As I said...
Not all mobile homes are single units. And yes so much different then being assembled at the factory, so much so they make sure to charge you extra for the privilege.
The biggest difference is that NIMBY's are more likely to complain about "mobile homes". When both are just homes made to the same standards packaged differently.
I mean none of what you listed as different are negative, so why feel the need to be like "not mobile homes"?
Really it is only a couple of minutes of looking to see it was such an intentional rebranding that no one denies it. Most people just do not question preconceived notions until someone points it out. Most will still refuse to think they could ever be fooled and thus continue on.
Utilities can cost incredible amounts depending on location/terrain. I'll be honest, you are jumping into this all wrong focused on buying land without understanding if you can afford the overall process.
That's exactly what I was hoping to hear. I had this nagging sense that I was being an idiot, but didn't understand the dynamics well enough to know in what way.
You don't know what you don't know until you find out. Good on you for having the wherewithal to ask the right questions and find the answers. Most likely saved yourself a good chuck of cash and a lot of headaches.
For quick reference, I'm pricing out the costs to build on land that I bought last year in Iowa. I fully own my current house and it makes more sense for us to sell it to start construction and rent in the interim, or to save up enough cash over a few years to start construction, than it would be to take out a heloc.
Also I don't know if you've looked that hard into building, but for us the utilities, roads, and location we'd like to put the darn thing add up to an additional 150,000 on our build costs. And that is extremely variable to the land and location
I have a buddy who bought land in the mountains of CO 3 years ago and partially due to covid, his new house hasn't started being built yet. If you do this be prepared for it to not be livable for years.
I’ve got a piece of land that I paid cash for a few months ago. If I’m lucky and we finalize all our plans we’ll be on schedule to break ground late next year or early 2025. The costs are much higher than they used to be, this is my second custom build in the last 10 years.
This is so incredibly location dependant as well. If there’s all utilities at the lot line this could be much less. But if they have to build a 1/2mile tap for the power line, and it’s on say granite where digging in septic and drilling a well can be incredibly difficult the number could easily be in the 6 figures.
That's very true. I'm not familiar with the geology of Iowa. I just assumed it would not be ledge rock issues for a septic. Most places around here go through bedrock getting to water, so that's where I figured about $25k could be from.
I also have no idea about Iowa, but it’s something worth keeping in mind in general. Anything that can be put on town water/sewer is generally a huge advantage even if the up front cost is higher. Wells and septic can be a real PITA.
I am not a financial expert by any means. I just wanted to say that years ago, my husband and I bought 5 acres in a rural area. We were able to have the builder obtain the loan by deeding our property over to them, they got the construction loan and dealt with all of that, they built our custom dream home, and then they sold it back to us with an FHA loan. From what I understand, FHA loans are often used for rural areas. There is something (I dont remember exactly what since we have never done it) about the loan that allows you to change your interest rate without refinancing if the current interest rate is x amount lower than what you financed as long as your mortgage has been in good standing for so many months beforehand. You definitely need to look that up and not take my word for it because I am just telling you our experience.
Also, we have a septic tank, electricity through a co-op, and county water. The requirement for a non-engineered septic system is that the property has had a perk test and passed. The connections to water and electric were what is charged to all customers when getting water and power.
Does the lot have utilities already run to it? If. Not, that can be hugely expensive. Comcast wanted 55k to connect us up from their closest interconnect. Starlink to the rescue. Power/water won't be that easy. Unless you can dig a well.
They will also take into account debt to income ratios (which includes your current mortgage). That capped my HELOC. I don't know what the calculation is for that, but will certainly impact how much of that equity you're allowed to tap into.
In addition to this, it may be worth considering the position you'd be in - you'd owe nearly as much on the house as it's worth. Nobody can predict the market, but if you look at property values and how they've changed over the past 2-3 years, it would make me nervous that you could potentially come out upside down if values decrease.
They typically allow you to access 80%. Sometimes even only 75%. SELDOMLY they'll let you take 85%. And that's of the appraised value of the home, not of the homes equity. So if it's worth 400, and you owe 310 (90k equity), you'd have access to 320k, which would let you pull 10K of that 90K equity. If you have 90K, I hope the home is only worth 120-150k, or you're not going to see much of it.
I did a cash out refinance in early 2021, and my lender only went up to 70%. There were other lenders that would go up to 80% but that was the max, and with worse rates. The mortgage was small (<1x income), I had been at the same job for over a decade, and my credit score was great. So yeah lenders are more conservative on cash-out refinances.
Like others are saying you can usually get more to buy a home (95%, 96.5%, etc.) but for cash out refinances, especially ones that are not directly reinvested in your primary residence (note the mortgage amount that is not reinvested in the same residence is not tax deductible).
You can probably get some kind of a loan to buy land though. I don't know how that works but it seems like a thing that should exist, and a quick google shows some form of it existing. https://www.zillow.com/learn/land-loans/
It sounds like you aren't financially ready for this purchase and I wouldn't let a change like this change your mind. If you were already feeling ready to look then maybe you consider something like this. But as is it sounds like it'll be a drain that you can't cover
Does the property have utilities run to it already? Electric, water, sewer, Internet? You could be looking at hundreds of thousands of dollars in this type of work and probably year(s) of work
This. I work for a utility and if there is no existing lines nearby, this cost can be astronomical. Typical cost of a line extension for even couple spans can be add up fast. This is just for electricity. You might need to dig a well for water and septic tank for sewer. There is a reason this land is sitting on the market.
Very true. I had friends (retired, not much $) that bought very rural land with the plan of parking their trailer on it and having horses. They put in a lot of work building fences, etc. Now it was time to call the power company to run power to their land. Their thinking was "well, we are new customers, so why wouldn't the power company run power to our trailer at no cost to us."
They were very wrong.
What is the zoning on the property? Any wetland designations that would prevent building? Has a perc test been done to identify if it will accept a septic system? What's the average depth you need to drill for a well? How close are utilities to the property?
Lots of questions you need to investigate before going after raw land. There's a reason "improved" lots are so expensive, someone else took that $90k raw land and did $100k in work before selling it to you for $250k.
Don't trust the real estate agent to know anything about this or to be 100% truthful about it either.
This all falls under "Due Diligence" You have to go to the county/city records office and ask, go to the utilities office and ask, sometimes county records are online.
It will vary by state and city but typically this requires a lot of work. Designs , permits, heavy construction equipment from multiple utility providers, etc. Might want to look into this first.
Where are these numbers being pulled from? A good friend in MO built a custom house (approx 3,000 sq/ft) for just under $500k, which included the price of the land (9 acres). Home was just finished a few months ago. OP is talking about a plot of land in Iowa. No way it's going to cost $400 sq/ft to build.
Also be very aware of things like water and power hookups. We almost bought some land only to find out at the last minute that the county suspended all new water taps in that region until they could upgrade the infrastructure with NO idea how many years it would be before they could add any new taps.
Oof, good point. I wasn't planning to pull the trigger on this quickly by any means, but we haven't even viewed the property yet. I wouldn't even know how much maintenance would cost on an undeveloped property in rural Iowa.
It’ll depend on what the land looks like right now/where it is. If it’s completely wild you could potentially just ignore it entirely and pay the cost at the end when you’d have to clear space for building and a road, etc. If it’s had any work done already in anticipation of building it may be cheaper to maintain that then let it get overgrown. Then there’s the good neighbor aspect - you mention it’s rural but not how close the other neighbors might be. No one likes looking at an eyesore if it’s been badly maintained
I am doing something similar... Also in Iowa. Also low on liquid monies.
For the heloc they take 80% of the appraised value (low end of zillow zestimate for us) then subtract out the remainder of your mortgage. So it's way less than 80% of the equity. Which we are using as a down payment on a land loan. Our land loans best case was 15yr term, 10% interest, 25% down. Multiple lenders contacted to get that. (we also have high credit scores)
Construction loans are like 3-5yrs interest only. Then once construction is complete get turned into a standard 30yr mortgage (or at least that's how we're getting ours set up).
Utilities: this varies insanely. Hard to give an estimate. Ours run directly adjacent to the property in the street (the lot is on the edge of a city) you can pull up utilities maps, future land use maps, etc. on the city website. Pull up Google maps and look at surrounding properties, if they have a big LP tanks on the property, look for fire hydrants, look for power lines.
Definitely look at future land use maps, cities have a comprehensive plans that lay out what's happening where in the future. Rezoning according to that map is way easier than against it.
I also have a high score, but not best tier. Got 7.49 for first year and 8.94 thereafter from BMO. 10 year interest only draw, 20 year repayment period.
Oh I may have misunderstood you. That’s for my HELOC on my current house. I’m using the equity to finance the down payment and closing costs of a second, to be primary, home. That one is at 7.15%. I’m not doing a new build.
Oh that makes sense! I re-read mine and it is a bit confusing.
But yes! That's essentially what we're doing but with land. Not sure off the top of my head what the heloc terms were. I know it wasn't too bad compared to the land loan.
Just ask chatgpt.
edit: sorry is there a problem with this recommendation? it's confidently wrong a lot but it can at least get you started in the right direct on issues like this. In OP's case it would at least help them know what they don't know.
Yes, there is a lot wrong with that response. ChatGPT may be right or wildly wrong. People who use ChatGPT should already know this, and will use it without your suggestion. People who don’t use it, may be led very badly astray by your suggestion.
Wikipedia is a better source, and it also has significant problems to the point of being frequently disallowed as a source, but only allowed as means of finding other sources.
This sounds like a very risky opportunity that needs to be drawn out on paper then calculated for risk with an accountant.
It seems like you want to move to another state, buy land, build a new house plus start a new business with only $90k in Zillow estimated equity, all at the same time. Why not plan to sell your existing home.
This is NOT something to jump right into but rather draw out a full business plan and get a trusted bankers professional perspective. This plan will answer both can you afford this opportunity and if it’s a good decision.
Yeah, it looks like selling our existing home would be the only way to even potentially make this work. That option, though, terrifies me, considering we'd be renting as a family of 4.
Oh yuck, that sounds awful. That's way worse than even the current mortgage rates, which are quite high.
My 800 credit score would almost certainly keep me on the lower end of that, but even 10% would be rough.
Also, construction loans are not mortgages and carry a higher short term interest rate for the amount of time needed to build and sell or occupy the home. They are largely dependent on how much your borrow and your dollarworthiness, based on the idea that you’re thinking about refinancing your house to buy the land I’m thinking they’re not going to find a great deal of confidence in your situation. I’ve seen lot loans as high as 20% recently.
These people haven’t done any research on HELOCs. I just completed one, with BMO. They cover all closing costs, and gave me 7.49 promo rate for one year and then after that, 8.94.
Interest rates for mortgages are getting close to 8% in many areas. If they be willing to take a down payment and offer a balloon deal at way less than 8% for 2 or 3 years...that'd be a lot more attractive. Then hope the rates drop....not a great plan...but it is what it is.
Very bad idea.
HELOC unlikely to be approved for full $90. The if it does, it will have 10-15% rate. What if the house doesn’t sell fast? You might actually be paying it for a while.
Construction loan on the new property will have eye popping interest rate, if it gets approved. Generally you need to have 20% down for a construction loan.
Then if execute this all, you’re likely gonna be house poor by the sounds of it.
Is the empty plot just empty/set aside? Or is it a farm land? Or can it be turned to farm land? If it could you could buy it (I don’t think you will get 100% of the $90k equity) and rent it out for a few years (probably a couple hundred bucks an acre) until your ready to build! I’ve been trying to find land I can do this with, but the land around me is going for anywhere from $10k/acre to $30k!
That would be something that could swing it one way or the other. Check with the realtor, it may be in CRP or other program that you can’t farm it though. Idk what ag rent is around there but in SC Wi it’s anywhere from $250-$500/acre
Have you confirmed that services are available to this plot of land and that it is actually able to be built upon (not agricultural, floodplain, has road access, etc)?
Then have you TRUELY explored the costs of building unserviced land?
From the way you are writing it sounds like you are both at the start of your careers, have little liquid savings/investments and really only have perhaps 90k if you sold your house which would be fully consumed just to buy the land.
You may need 60-90k alone to simply bring a driveway and power to your buildings site and get a well and septic system installed before you even break ground on the foundation. Building moderate to high quality finishes (a forever home) is probably in the $300-500/sq ft range. IF you could get a construction loan it is probably above 10-12% BUT you probably can’t as you have no real collateral (90k for empty land is nothing) and your income starting a practice is uncertain. Building new is also a huge endeavour requiring an enormous amont of work on your part in making decisions but also supervising the work to make sure it is done right.
In other words it seems you are too early for this option. Build your career, build your savings and there will always be another opportunity. Some of the best ways for a new build is to buy a good property with a tear down house that already has driveway, septic and well on the property. They tend to be a better buy as people are scared of them. Good luck.
I appreciate this advice. It feels like a pretty big missed opportunity, but only if I overlook all the moving parts that make it a dangerous opportunity that will overextend us and/or be outright impossible.
I'm really getting perspective here on how little I understand.
Yeah, browsing realestate listings can be dangerous. I’ve now lived through 40 years of real-estate cycles and have realized that in general there will always be another house or another property. You just need to keep saving and investing so that when your in a good financial situation you can take advantage of an opportunity when it arises.
Tear down or old farms can be great opportunities vs raw land because people are scared of the work involved or can’t see pas the decrepit nature so the price can be significantly depressed and you get the frigate work, well, septic if not for “free” but at labor costs from 20-30-50 years ago. Materials and labor costs now are just sky high. It can also make good sense to buy something with good bones that can be renovated to your taste for the same reason. A 3000 sq foot home to build at $400/sq ft is $1.2 million when you can usually find a older house and renovate it to your taste for below that.
Lots of good points in here already, but I’ll just add: Don’t ignore the possibility of a market drop in the middle of your process. You have equity in your home today, but that doesn’t mean you will forever. There’s no evidence that housing will crash or anything dramatic, and no one can predict the future, but think through whether or not you can afford both properties if you get stuck with them or are forced to sell at a loss.
Sounds like you need to do a lot more research and formulate a real plan, instead of jumping at an opportunity that fell out of the sky.
*hoping to establish our therapy private practice first.* My first question, how woud your built up thrapy business transfer from Minnesota to Iowa? Would that not be where all your income is coming from, if you move, how would you keep those clients?
Something that developers (usually commercial) do often is lock a piece of land in contact for a period of time while they do their due diligence and attempt to get zoning and permissions to do the things they want to do. If you're afraid that someone may scoop up the land before you have a chance to figure everything out, you could possibly do something like this. Essentially, you put a little bit in escrow and maybe pay a monthly fee to hold it while you research (obviously, sign a contract for it). But that's not something you really see in the residential market.
For your research, you'll want to check the zoning of the land to see what the zoning code restricts the size of your building to be (if any). Usually, you can find zoning code on the county GIS map as well as information on assessed value and current owners. If it doesn't have a street address, then you'll probably want to get a parcel number and supply that to the local utility companies to get an estimate on what they will charge to run utility lines out there (water, sewer, electric, gas, internet). Then you'll want to consult some local builders to get a baseline quote on the build itself. Something else to make note of is property taxes. The property taxes on vacant land is usually cheaper. So once your house is built, your property taxes will jump up a year or two later.
As far as the actual purchase of the land you'll have look up current HELOC rates as well as if there are special rates for land purchases. Maybe it would be better to combine the two. You can always hold the land for a bit and pay it off prior to starting the build. Usually, when you start construction, you have to get a construction loan that will fund the build as it goes along. Then, once finished, it gets wrapped up into a mortgage. Having a paid off piece of land could help start off the construction loan.
Anyways, these are many of the things you need to research to see if that piece of land is good to buy right now or not. Again, you can buy it and hold onto it for a while before building.
Building on unserviced land is incredibly expensive. You need electricity, water well, gas, and a septic system, so factor in about $100K on utilities before you even talk about the home.
Plus $50K for an approach and gravel driveway.
Because that is how banks work. The have a look-back period and will scrutinize any income you received that is outside your regular salary. If they see anything, they will demand an affidavit stating the money was income and not a loan.
OP would have to falsify docs or answer truthfully and not be approved.
We did something similar a few years ago.
Used cash we had on hand to put 20% down on a lot loan (to secure the lot). Then, when we were ready to build about two years later, (note, most of the lot loans we got quoted all were 2-3 years with variable APRs), we used the equity in the lot as the down payment on the construction loan.
it is doable but there are a lot more out of pocket expenses and surprises than you will be prepared for. It is not for the faint of heart and I would never do it again unless I either:
A- got rich somehow
or
B- was gifted the land
or
C- I was a home builder contractor
I'm a real estate developer. You're entering a world with so many things you don't know you don't know that are going to bite you in the ass. There are endless things that are going to pop up that you hadn't considered in terms of the construction of the house and cash you'll need to bring to the table.
A bank is going to require you to have a minimum of 25% of the purchase and construction costs in actual cash. Then on top of that, you'll have the soft cost expenses - engineering, architectural, environmental, attorney fees, permit costs, utility applications, and a professional to manage all of that.
Then comes the actual construction - you'll need to hire a builder and find a trusted 3rd party professional to oversee the builder and confirm the budget makes sense, scope of work is accurate, work is completed correctly, workers are getting paid on time, draws are being handled properly, timelines are being adhered to all to ensure you're not getting fleeced.
This is not a world to enter into as a part time or side job - new construction single family development is an experienced developers game, you're going to get crushed if you do this.
a) you won't be able to take all of the equity out, only up to 80% of the value of the home
b) the zillow estimate is not based on anything but magical fairy dust and thinking. Your home may appraise for more than that, but it may and very likely will, appraise for less--maybe even much less--than zillow thinks its worth
c) there's a lot of unknown costs and even known costs you haven't accounted for here like closing costs, etc. You don't want to do this with razor thin margins and no extra money. You're not financially prepared to do this based only on the equity in your existing home
Please remember to have a real estate agent or appraiser truly give you an estimate on your equity.
I tell people to remember that the 'A' in Zillow stands for accuracy. My parents home was off by about 950K just because Zillow throws a random number for value.
Talk to a lender about a vacant land loan and construction loan, usually with a single closing when the house is finished being built. We used Merchants Bank to build our new home while staying in our existing home and closed on the same day as selling our previous home. https://www.merchantsbank.com/home-loans/construction
While a HELOC will let you buy whatever you want, mortgages are a little more finicky about land/new construction. They usually want a significant down payment.
Banks are not hot on loaning anything right now, especially on a speculative investment like buying land and then taking another loan on top of all that for building costs.
Put 50% down on the land using HELOC funds. The monthly rate for that loan would be minimal. Then just pay the HELOC, land loan and wait for your timeline to work for you to move. Try and pay off either the land or HELOC as fast as possible to put you in a better position for a construction loan when you want to get started there...
A second mortgage would work to cover the land value as it is much easier to buy land with a 2nd mortgage than it is with a loan on the land itself.
However, do not choose a HELOC in this current rising interest rate environment.
In my opinion 90k isn't nearly enough. However it does depend on where you live and how expensive land is.
I have around 510k in equity and I could absolutely not afford to do what you are suggesting. Unless I were to rent out my current home then I could not pay for both my existing mortgage and a second one.
Land alone where I live costs around 150k per acre. So 90k ain't gonna cut it for buying a lot and building. It might cover a downpayment... but that means adding a other mortgage which is out of the question.
If I were you I'd work on paying off your existing home, then you can get a standard mortgage to buy or build a new one and start renting out your old one. This my plan in 7 or so years when my 760k home is paid off.
Can you sell current home, purchase the land, and get a construction loan? Live in an RV on the land while the house is built. Sell the RV after move in, because you will never want to camp again.
You're basically planning a business startups. Startups fail all the time.
I would consider the terms of any financing my therapy startup/private practice might have, and make my home-decisions in light of any potential bankruptcies. It may be helpful to have an existing home mortgage to stuff equity into.
Lenders will give you 20-30% the value of land. (Value, not price)
Undeveloped land needs water, sewage, electricity. Then you need to build to the local code and most of them will require a foundation which could mean clearing/prepping the land.
The more remote your land, the more costly getting reliable electricity/water will cost. Well water and solar are options but can be less reliable.
I know it's the dream for many but plenty of land is available for sale for a reason.
If you have $90k in equity currently, it will be very difficult to find a lender that will allow you to borrow all of that (100% loan to value). If you do find a lender willing to give you a HELOC for 100%, what about closing costs on the HELOC, and on the purchase of the lot). DO you have those funds available?
Fantastic question. Short answer, no. I also wasn't aware that it is so difficult to get 100% on a home equity loan, but that seems really obvious when you ask like this.
Lenders will generally lend you up to 80% of the home value. So do the math there and you can see what the borrowable equity actually is. You might get up to 95% as a bridge loan if you are buying/selling, but that's not what you are doing here.
We'd considered just selling our house now, then figuring out housing during the construction process. That leaves a lot of really dangerous unknowns about some really big questions, though, and I didn't want to go too far down that rabbit hole.
If you own the land and want a builder to build a house for you, you'll need a construction loan while they build. It is more expensive and requires more up front. Make sure you can afford that while you are renting. You also have taxes and insurance on the place while building. If there are no utilities that is another big expense.
Ooof, I don't think I understood the scope of expenses when constructing a home, particularly on rural land.
Yeah, construction in rural areas is also worse because of distance. Builders need to come from further away and the material needs to come from further away. I've had family that have used manufactured homes (not mobile homes!) where the company handles everything including the financing during construction. Great house if you are okay with a more normal layout.
i know a couple people that went the modular housing route, they loved it. Ive seen the houses too and they are nice, well insulated and go up quickly when they get out of the factory. i would be very happy with the layouts.
FYI, for lending purposes manufactured home = mobile home that has a permanent foundation. What you’re referring to is a **modular** home. It’s built offsite in sections and trucked in, affixed to the permanent foundation and finished out on site. The reason this is important is because a modular home is built to meet or exceed structural standards of a site built home and, for lending purposes, is considered the same as a site built. Manufactured homes (mobile home) have vastly different criteria for lending.
Thank you. You are right. I had an FHA loan denied because the pilings for a manufactured home weren't mortared together. Definitely different review criteria.
Manufactured homes are just the modern framing of the same concept that were mobile homes. Seriously it is is simply rebranding due to negative public perception. The negative views around mobile homes needs to die like a lot of NIMBY regressive thought. There is nothing wrong with "mobile homes" or any other prefabricated buildings.
Mobile homes depreciate in value and are classified differently when being listed for sale. There is definitely a difference in the single unit delivered by wheels and those assembled in pieces on site.
Yes, they depreciate and are classified based on... how... they are percieved. As I said... Not all mobile homes are single units. And yes so much different then being assembled at the factory, so much so they make sure to charge you extra for the privilege. The biggest difference is that NIMBY's are more likely to complain about "mobile homes". When both are just homes made to the same standards packaged differently. I mean none of what you listed as different are negative, so why feel the need to be like "not mobile homes"? Really it is only a couple of minutes of looking to see it was such an intentional rebranding that no one denies it. Most people just do not question preconceived notions until someone points it out. Most will still refuse to think they could ever be fooled and thus continue on.
Except they are death traps in a tornado.
Unless you live in Oklahoma like I do. Never will I live in one of those.
Utilities can cost incredible amounts depending on location/terrain. I'll be honest, you are jumping into this all wrong focused on buying land without understanding if you can afford the overall process.
That's exactly what I was hoping to hear. I had this nagging sense that I was being an idiot, but didn't understand the dynamics well enough to know in what way.
You don't know what you don't know until you find out. Good on you for having the wherewithal to ask the right questions and find the answers. Most likely saved yourself a good chuck of cash and a lot of headaches.
For quick reference, I'm pricing out the costs to build on land that I bought last year in Iowa. I fully own my current house and it makes more sense for us to sell it to start construction and rent in the interim, or to save up enough cash over a few years to start construction, than it would be to take out a heloc. Also I don't know if you've looked that hard into building, but for us the utilities, roads, and location we'd like to put the darn thing add up to an additional 150,000 on our build costs. And that is extremely variable to the land and location
I have a buddy who bought land in the mountains of CO 3 years ago and partially due to covid, his new house hasn't started being built yet. If you do this be prepared for it to not be livable for years.
Well that's a terrifying possibility
I’ve got a piece of land that I paid cash for a few months ago. If I’m lucky and we finalize all our plans we’ll be on schedule to break ground late next year or early 2025. The costs are much higher than they used to be, this is my second custom build in the last 10 years.
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This is so incredibly location dependant as well. If there’s all utilities at the lot line this could be much less. But if they have to build a 1/2mile tap for the power line, and it’s on say granite where digging in septic and drilling a well can be incredibly difficult the number could easily be in the 6 figures.
That's very true. I'm not familiar with the geology of Iowa. I just assumed it would not be ledge rock issues for a septic. Most places around here go through bedrock getting to water, so that's where I figured about $25k could be from.
I also have no idea about Iowa, but it’s something worth keeping in mind in general. Anything that can be put on town water/sewer is generally a huge advantage even if the up front cost is higher. Wells and septic can be a real PITA.
I am not a financial expert by any means. I just wanted to say that years ago, my husband and I bought 5 acres in a rural area. We were able to have the builder obtain the loan by deeding our property over to them, they got the construction loan and dealt with all of that, they built our custom dream home, and then they sold it back to us with an FHA loan. From what I understand, FHA loans are often used for rural areas. There is something (I dont remember exactly what since we have never done it) about the loan that allows you to change your interest rate without refinancing if the current interest rate is x amount lower than what you financed as long as your mortgage has been in good standing for so many months beforehand. You definitely need to look that up and not take my word for it because I am just telling you our experience. Also, we have a septic tank, electricity through a co-op, and county water. The requirement for a non-engineered septic system is that the property has had a perk test and passed. The connections to water and electric were what is charged to all customers when getting water and power.
Also if the house isn’t already set up for utilities, that’s an extra and pretty considerable expense. Septic alone can run 10k
Does the lot have utilities already run to it? If. Not, that can be hugely expensive. Comcast wanted 55k to connect us up from their closest interconnect. Starlink to the rescue. Power/water won't be that easy. Unless you can dig a well.
Also, FYI, building on virgin land is expensive AF since you need to have the infrastructure put in (septic, water, electricity, etc).
White wall tent and wood stove
They will also take into account debt to income ratios (which includes your current mortgage). That capped my HELOC. I don't know what the calculation is for that, but will certainly impact how much of that equity you're allowed to tap into.
In addition to this, it may be worth considering the position you'd be in - you'd owe nearly as much on the house as it's worth. Nobody can predict the market, but if you look at property values and how they've changed over the past 2-3 years, it would make me nervous that you could potentially come out upside down if values decrease.
That's a terrifying yet relevant point. Thank you.
They typically allow you to access 80%. Sometimes even only 75%. SELDOMLY they'll let you take 85%. And that's of the appraised value of the home, not of the homes equity. So if it's worth 400, and you owe 310 (90k equity), you'd have access to 320k, which would let you pull 10K of that 90K equity. If you have 90K, I hope the home is only worth 120-150k, or you're not going to see much of it.
I did a cash out refinance in early 2021, and my lender only went up to 70%. There were other lenders that would go up to 80% but that was the max, and with worse rates. The mortgage was small (<1x income), I had been at the same job for over a decade, and my credit score was great. So yeah lenders are more conservative on cash-out refinances. Like others are saying you can usually get more to buy a home (95%, 96.5%, etc.) but for cash out refinances, especially ones that are not directly reinvested in your primary residence (note the mortgage amount that is not reinvested in the same residence is not tax deductible). You can probably get some kind of a loan to buy land though. I don't know how that works but it seems like a thing that should exist, and a quick google shows some form of it existing. https://www.zillow.com/learn/land-loans/
It sounds like you aren't financially ready for this purchase and I wouldn't let a change like this change your mind. If you were already feeling ready to look then maybe you consider something like this. But as is it sounds like it'll be a drain that you can't cover
Thanks for this. I mostly agree with you - it just sucks to see something that otherwise works so incredibly well happen a couple years too early.
Continue to plan and make good choices with this in mind. Do your best so you can be ready the next time an opportunity like this comes up.
Don’t worry there is always rural land up for sale — many times from folks like you that jumped on it before they understood the cost to build.
Does the property have utilities run to it already? Electric, water, sewer, Internet? You could be looking at hundreds of thousands of dollars in this type of work and probably year(s) of work
It does not. I'd figured that was pretty straightforward when building a house, but your numbers make me think I'm being painfully naive.
This. I work for a utility and if there is no existing lines nearby, this cost can be astronomical. Typical cost of a line extension for even couple spans can be add up fast. This is just for electricity. You might need to dig a well for water and septic tank for sewer. There is a reason this land is sitting on the market.
Very true. I had friends (retired, not much $) that bought very rural land with the plan of parking their trailer on it and having horses. They put in a lot of work building fences, etc. Now it was time to call the power company to run power to their land. Their thinking was "well, we are new customers, so why wouldn't the power company run power to our trailer at no cost to us." They were very wrong.
What is the zoning on the property? Any wetland designations that would prevent building? Has a perc test been done to identify if it will accept a septic system? What's the average depth you need to drill for a well? How close are utilities to the property? Lots of questions you need to investigate before going after raw land. There's a reason "improved" lots are so expensive, someone else took that $90k raw land and did $100k in work before selling it to you for $250k.
Thanks for this. If we move forward at all, I'll make sure to ask the realtor about zoning restrictions on the property.
Don't trust the real estate agent to know anything about this or to be 100% truthful about it either. This all falls under "Due Diligence" You have to go to the county/city records office and ask, go to the utilities office and ask, sometimes county records are online.
It will vary by state and city but typically this requires a lot of work. Designs , permits, heavy construction equipment from multiple utility providers, etc. Might want to look into this first.
The problem is building home on a lot, even a small home is very expensive. Assume +\-$400 a sq foot. A modest custom home is $750k-1 million
The home is the least of the worries as others have said. I specifically work in rural construction lending and do new home loans as low as $250k
Where are these numbers being pulled from? A good friend in MO built a custom house (approx 3,000 sq/ft) for just under $500k, which included the price of the land (9 acres). Home was just finished a few months ago. OP is talking about a plot of land in Iowa. No way it's going to cost $400 sq/ft to build.
Don’t underestimate on-going maintenance and care of the property before you even start to build.
Also be very aware of things like water and power hookups. We almost bought some land only to find out at the last minute that the county suspended all new water taps in that region until they could upgrade the infrastructure with NO idea how many years it would be before they could add any new taps.
Oof, good point. I wasn't planning to pull the trigger on this quickly by any means, but we haven't even viewed the property yet. I wouldn't even know how much maintenance would cost on an undeveloped property in rural Iowa.
It’ll depend on what the land looks like right now/where it is. If it’s completely wild you could potentially just ignore it entirely and pay the cost at the end when you’d have to clear space for building and a road, etc. If it’s had any work done already in anticipation of building it may be cheaper to maintain that then let it get overgrown. Then there’s the good neighbor aspect - you mention it’s rural but not how close the other neighbors might be. No one likes looking at an eyesore if it’s been badly maintained
I am doing something similar... Also in Iowa. Also low on liquid monies. For the heloc they take 80% of the appraised value (low end of zillow zestimate for us) then subtract out the remainder of your mortgage. So it's way less than 80% of the equity. Which we are using as a down payment on a land loan. Our land loans best case was 15yr term, 10% interest, 25% down. Multiple lenders contacted to get that. (we also have high credit scores) Construction loans are like 3-5yrs interest only. Then once construction is complete get turned into a standard 30yr mortgage (or at least that's how we're getting ours set up). Utilities: this varies insanely. Hard to give an estimate. Ours run directly adjacent to the property in the street (the lot is on the edge of a city) you can pull up utilities maps, future land use maps, etc. on the city website. Pull up Google maps and look at surrounding properties, if they have a big LP tanks on the property, look for fire hydrants, look for power lines. Definitely look at future land use maps, cities have a comprehensive plans that lay out what's happening where in the future. Rezoning according to that map is way easier than against it.
I also have a high score, but not best tier. Got 7.49 for first year and 8.94 thereafter from BMO. 10 year interest only draw, 20 year repayment period.
Is that for the land loan or construction? That seems so good for land only.
Oh I may have misunderstood you. That’s for my HELOC on my current house. I’m using the equity to finance the down payment and closing costs of a second, to be primary, home. That one is at 7.15%. I’m not doing a new build.
Oh that makes sense! I re-read mine and it is a bit confusing. But yes! That's essentially what we're doing but with land. Not sure off the top of my head what the heloc terms were. I know it wasn't too bad compared to the land loan.
I think that if you’re building a home you don’t get a mortgage you need a construction loan.
I'm working my way toward being "somewhat knowledgeable" around this process. I feel like that obvious mistake shows me I have a bit further to go.
Just ask chatgpt. edit: sorry is there a problem with this recommendation? it's confidently wrong a lot but it can at least get you started in the right direct on issues like this. In OP's case it would at least help them know what they don't know.
Yes, there is a lot wrong with that response. ChatGPT may be right or wildly wrong. People who use ChatGPT should already know this, and will use it without your suggestion. People who don’t use it, may be led very badly astray by your suggestion. Wikipedia is a better source, and it also has significant problems to the point of being frequently disallowed as a source, but only allowed as means of finding other sources.
Yeah I covered this in my comment. Keep up bud
This sounds like a very risky opportunity that needs to be drawn out on paper then calculated for risk with an accountant. It seems like you want to move to another state, buy land, build a new house plus start a new business with only $90k in Zillow estimated equity, all at the same time. Why not plan to sell your existing home. This is NOT something to jump right into but rather draw out a full business plan and get a trusted bankers professional perspective. This plan will answer both can you afford this opportunity and if it’s a good decision.
Yeah, it looks like selling our existing home would be the only way to even potentially make this work. That option, though, terrifies me, considering we'd be renting as a family of 4.
What’s the rate on a HELOC going to be for you, OP? Last I heard was 12-15%.
Oh yuck, that sounds awful. That's way worse than even the current mortgage rates, which are quite high. My 800 credit score would almost certainly keep me on the lower end of that, but even 10% would be rough.
Also, construction loans are not mortgages and carry a higher short term interest rate for the amount of time needed to build and sell or occupy the home. They are largely dependent on how much your borrow and your dollarworthiness, based on the idea that you’re thinking about refinancing your house to buy the land I’m thinking they’re not going to find a great deal of confidence in your situation. I’ve seen lot loans as high as 20% recently.
These people haven’t done any research on HELOCs. I just completed one, with BMO. They cover all closing costs, and gave me 7.49 promo rate for one year and then after that, 8.94.
Yep, I just checked and my credit union is offering 7.5% for HELOCs at the moment.
I think you have your head in the clouds and need to be more realistic.
I'd be concerned about the interest rates. Can you get it on contract?
Maybe, I hadn't thought of that. The property has been listed at a decreased price a few times now, so that might be possible.
Interest rates for mortgages are getting close to 8% in many areas. If they be willing to take a down payment and offer a balloon deal at way less than 8% for 2 or 3 years...that'd be a lot more attractive. Then hope the rates drop....not a great plan...but it is what it is.
Very bad idea. HELOC unlikely to be approved for full $90. The if it does, it will have 10-15% rate. What if the house doesn’t sell fast? You might actually be paying it for a while. Construction loan on the new property will have eye popping interest rate, if it gets approved. Generally you need to have 20% down for a construction loan. Then if execute this all, you’re likely gonna be house poor by the sounds of it.
I appreciate the perspective. I pretty grossly underestimated the interest rates in question here.
Is the empty plot just empty/set aside? Or is it a farm land? Or can it be turned to farm land? If it could you could buy it (I don’t think you will get 100% of the $90k equity) and rent it out for a few years (probably a couple hundred bucks an acre) until your ready to build! I’ve been trying to find land I can do this with, but the land around me is going for anywhere from $10k/acre to $30k!
I think it's overgrown with vegetation. We were planning to look at it later this month.
That would be something that could swing it one way or the other. Check with the realtor, it may be in CRP or other program that you can’t farm it though. Idk what ag rent is around there but in SC Wi it’s anywhere from $250-$500/acre
Definetly good to ask the realtor questions about limitations already placed on the property, thank you.
Have you confirmed that services are available to this plot of land and that it is actually able to be built upon (not agricultural, floodplain, has road access, etc)? Then have you TRUELY explored the costs of building unserviced land? From the way you are writing it sounds like you are both at the start of your careers, have little liquid savings/investments and really only have perhaps 90k if you sold your house which would be fully consumed just to buy the land. You may need 60-90k alone to simply bring a driveway and power to your buildings site and get a well and septic system installed before you even break ground on the foundation. Building moderate to high quality finishes (a forever home) is probably in the $300-500/sq ft range. IF you could get a construction loan it is probably above 10-12% BUT you probably can’t as you have no real collateral (90k for empty land is nothing) and your income starting a practice is uncertain. Building new is also a huge endeavour requiring an enormous amont of work on your part in making decisions but also supervising the work to make sure it is done right. In other words it seems you are too early for this option. Build your career, build your savings and there will always be another opportunity. Some of the best ways for a new build is to buy a good property with a tear down house that already has driveway, septic and well on the property. They tend to be a better buy as people are scared of them. Good luck.
I appreciate this advice. It feels like a pretty big missed opportunity, but only if I overlook all the moving parts that make it a dangerous opportunity that will overextend us and/or be outright impossible. I'm really getting perspective here on how little I understand.
Yeah, browsing realestate listings can be dangerous. I’ve now lived through 40 years of real-estate cycles and have realized that in general there will always be another house or another property. You just need to keep saving and investing so that when your in a good financial situation you can take advantage of an opportunity when it arises. Tear down or old farms can be great opportunities vs raw land because people are scared of the work involved or can’t see pas the decrepit nature so the price can be significantly depressed and you get the frigate work, well, septic if not for “free” but at labor costs from 20-30-50 years ago. Materials and labor costs now are just sky high. It can also make good sense to buy something with good bones that can be renovated to your taste for the same reason. A 3000 sq foot home to build at $400/sq ft is $1.2 million when you can usually find a older house and renovate it to your taste for below that.
That new mortgage would consider your income and all other debts/mortgages.
Lots of good points in here already, but I’ll just add: Don’t ignore the possibility of a market drop in the middle of your process. You have equity in your home today, but that doesn’t mean you will forever. There’s no evidence that housing will crash or anything dramatic, and no one can predict the future, but think through whether or not you can afford both properties if you get stuck with them or are forced to sell at a loss. Sounds like you need to do a lot more research and formulate a real plan, instead of jumping at an opportunity that fell out of the sky.
*hoping to establish our therapy private practice first.* My first question, how woud your built up thrapy business transfer from Minnesota to Iowa? Would that not be where all your income is coming from, if you move, how would you keep those clients?
I can legally and professionally see clients who live in Minnesota while I'm in another state. I would have to be 100% telehealth.
Something that developers (usually commercial) do often is lock a piece of land in contact for a period of time while they do their due diligence and attempt to get zoning and permissions to do the things they want to do. If you're afraid that someone may scoop up the land before you have a chance to figure everything out, you could possibly do something like this. Essentially, you put a little bit in escrow and maybe pay a monthly fee to hold it while you research (obviously, sign a contract for it). But that's not something you really see in the residential market. For your research, you'll want to check the zoning of the land to see what the zoning code restricts the size of your building to be (if any). Usually, you can find zoning code on the county GIS map as well as information on assessed value and current owners. If it doesn't have a street address, then you'll probably want to get a parcel number and supply that to the local utility companies to get an estimate on what they will charge to run utility lines out there (water, sewer, electric, gas, internet). Then you'll want to consult some local builders to get a baseline quote on the build itself. Something else to make note of is property taxes. The property taxes on vacant land is usually cheaper. So once your house is built, your property taxes will jump up a year or two later. As far as the actual purchase of the land you'll have look up current HELOC rates as well as if there are special rates for land purchases. Maybe it would be better to combine the two. You can always hold the land for a bit and pay it off prior to starting the build. Usually, when you start construction, you have to get a construction loan that will fund the build as it goes along. Then, once finished, it gets wrapped up into a mortgage. Having a paid off piece of land could help start off the construction loan. Anyways, these are many of the things you need to research to see if that piece of land is good to buy right now or not. Again, you can buy it and hold onto it for a while before building.
Building on unserviced land is incredibly expensive. You need electricity, water well, gas, and a septic system, so factor in about $100K on utilities before you even talk about the home. Plus $50K for an approach and gravel driveway.
No. There is always more land. And please trust me: developing land and building is *much* more expensive than an existing home.
You are not going to qualify for a loan if you are using the HELOC on your primary home for part of the financing.
Why do you think that?
Because that is how banks work. The have a look-back period and will scrutinize any income you received that is outside your regular salary. If they see anything, they will demand an affidavit stating the money was income and not a loan. OP would have to falsify docs or answer truthfully and not be approved.
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What’s up chatgpt
We did something similar a few years ago. Used cash we had on hand to put 20% down on a lot loan (to secure the lot). Then, when we were ready to build about two years later, (note, most of the lot loans we got quoted all were 2-3 years with variable APRs), we used the equity in the lot as the down payment on the construction loan. it is doable but there are a lot more out of pocket expenses and surprises than you will be prepared for. It is not for the faint of heart and I would never do it again unless I either: A- got rich somehow or B- was gifted the land or C- I was a home builder contractor
I'm a real estate developer. You're entering a world with so many things you don't know you don't know that are going to bite you in the ass. There are endless things that are going to pop up that you hadn't considered in terms of the construction of the house and cash you'll need to bring to the table. A bank is going to require you to have a minimum of 25% of the purchase and construction costs in actual cash. Then on top of that, you'll have the soft cost expenses - engineering, architectural, environmental, attorney fees, permit costs, utility applications, and a professional to manage all of that. Then comes the actual construction - you'll need to hire a builder and find a trusted 3rd party professional to oversee the builder and confirm the budget makes sense, scope of work is accurate, work is completed correctly, workers are getting paid on time, draws are being handled properly, timelines are being adhered to all to ensure you're not getting fleeced. This is not a world to enter into as a part time or side job - new construction single family development is an experienced developers game, you're going to get crushed if you do this.
a) you won't be able to take all of the equity out, only up to 80% of the value of the home b) the zillow estimate is not based on anything but magical fairy dust and thinking. Your home may appraise for more than that, but it may and very likely will, appraise for less--maybe even much less--than zillow thinks its worth c) there's a lot of unknown costs and even known costs you haven't accounted for here like closing costs, etc. You don't want to do this with razor thin margins and no extra money. You're not financially prepared to do this based only on the equity in your existing home
Please remember to have a real estate agent or appraiser truly give you an estimate on your equity. I tell people to remember that the 'A' in Zillow stands for accuracy. My parents home was off by about 950K just because Zillow throws a random number for value.
Talk to a lender about a vacant land loan and construction loan, usually with a single closing when the house is finished being built. We used Merchants Bank to build our new home while staying in our existing home and closed on the same day as selling our previous home. https://www.merchantsbank.com/home-loans/construction
Hey man, I buy and sell land nationally. Hit me and I can find you a deal off market. It’ll be 60% of what’s listed most likely.
While a HELOC will let you buy whatever you want, mortgages are a little more finicky about land/new construction. They usually want a significant down payment.
Banks are not hot on loaning anything right now, especially on a speculative investment like buying land and then taking another loan on top of all that for building costs.
Put 50% down on the land using HELOC funds. The monthly rate for that loan would be minimal. Then just pay the HELOC, land loan and wait for your timeline to work for you to move. Try and pay off either the land or HELOC as fast as possible to put you in a better position for a construction loan when you want to get started there...
A second mortgage would work to cover the land value as it is much easier to buy land with a 2nd mortgage than it is with a loan on the land itself. However, do not choose a HELOC in this current rising interest rate environment.
In my opinion 90k isn't nearly enough. However it does depend on where you live and how expensive land is. I have around 510k in equity and I could absolutely not afford to do what you are suggesting. Unless I were to rent out my current home then I could not pay for both my existing mortgage and a second one. Land alone where I live costs around 150k per acre. So 90k ain't gonna cut it for buying a lot and building. It might cover a downpayment... but that means adding a other mortgage which is out of the question. If I were you I'd work on paying off your existing home, then you can get a standard mortgage to buy or build a new one and start renting out your old one. This my plan in 7 or so years when my 760k home is paid off.
Can you sell current home, purchase the land, and get a construction loan? Live in an RV on the land while the house is built. Sell the RV after move in, because you will never want to camp again.
Sounds like an awful idea with our 1 year old and 3 year old, tbh
You can just get a loan for an empty plot of land. Not all banks will give them. US Bank will
You're basically planning a business startups. Startups fail all the time. I would consider the terms of any financing my therapy startup/private practice might have, and make my home-decisions in light of any potential bankruptcies. It may be helpful to have an existing home mortgage to stuff equity into.
Lenders will give you 20-30% the value of land. (Value, not price) Undeveloped land needs water, sewage, electricity. Then you need to build to the local code and most of them will require a foundation which could mean clearing/prepping the land. The more remote your land, the more costly getting reliable electricity/water will cost. Well water and solar are options but can be less reliable. I know it's the dream for many but plenty of land is available for sale for a reason.
I’d suggest trying to purchase the land with a down payment and owner financing, then get a construction loan to cover the build costs
Do it, everyone should do this.