Home Buying in 55124>Question Details

drmoses48, Home Buyer in 55124

Building a new home, how does the lot get purchased?

Asked by drmoses48, 55124 Tue Sep 25, 2012

I have been looking at building a new home in a development. These homes all include the lot as part of the sell. What if I want to build a new home on a lot that is being sold by a real estate agency? Can I wrap it all up in one transaction? The reason I want the one transaction is twofold - 1) I would feel more comfortable buying a finished product. 2) I want the mortgage tax deduction to apply to the whole mortgage and not just the land or house.

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7
Gail Strom’s answer
Drmosses- I've represented 12+ builders since 2002 and have marketed lots, new homes, and any combination of these. Here are a few things you WILL come across just driving through new housing developments.

1)Very commonly a builder will hold an inventory of lots which buyers can choose on, and of course build with that builder on those lots.

2)You may come across a model home in a neighborhood where that particular builder is building but does not own any lots in that neighborhood. However the lots in this neighborhood can be reserved to a certain list of builders. More common now that 10 years ago since builders don't have to carry a large number of lots. Many builders went out of business during the downturn of the housing market simply because the cost to carry their lot inventory was too much to bare.

3)This scenario is much more common for acreage parcels, in the general metro area anyway, and these are lots that are simply for sale, you bring your own builder. The lots closer in to the metro are generally tied up by builders and developers with an approved builder list.

Now! Depending on which scenario you come across financing will also vary. Commonly you can find a lot with a builder who will have their own construction financing, you're required to pay earnest money at any variable amount, typically 5%. If you buy a lot and bring a builder you may need to acquire construction financing and taking draws from that loan until final close when you would essentially refinance with a new loan.

There are a lot of variables and I apologize for missing some of the detail. I spend a lot of time searching for lots and work with custom builders so feel freed to bounce any questions off of me that you have :)
0 votes Thank Flag Link Wed Dec 4, 2013
DrMoses,
Yes. If you buy a lot and have a home built on it, you can have one loan for the entire project. Now, getting there may take various routes. If the lot is already builder owned, this will be the simplist. If you find your own lot, have to get plans approved and go through a lengthy process, you may end up starting with a lot loan but later wrapping that into an all-in-one construction loan.
Talk to some local lenders to see what you qualify for and to understand these products.
1 vote Thank Flag Link Tue Sep 25, 2012
Sometimes a builder will buy the lot and build on it with a loan they get and then sell the lot and home to you. Sometimes you buy the lot and get a construction loan and they can have a 2 part closing. It is just like buying anything, #1 step one is going to see a lender and they can explain the options. The builder will have an idea what they want to do and how they want to do it too.
1 vote Thank Flag Link Tue Sep 25, 2012
In most new construction the builder owns the lot and sells you the lot with a new home. If you are buying the lot and hiring a builder, you would need a construction loan that would allow you to do such a thing. Ask your loan officer to explalin your options.
1 vote Thank Flag Link Tue Sep 25, 2012
Hi,

You can either find a builder that you prefer and see what lots they have available to choose from, or seek out a lot that you like with a real estate agent and then find a builder that will build on it. Depends on what your preferences are. I have worked with clients that are partial to a builder and want to start there and I have worked with clients that would prefer to seek out their dream lot and then choose a builder. I recommend always having a trusted agent to represent you that can help you begin the process and have your best interest in mind at all times. I hope that helps:)

Best of luck!
Rachel Long
952-237-5312
0 votes Thank Flag Link Mon Nov 5, 2012
drmoses48,

To break it all down.

1. Choose the lot.

2. Find out who owns it. If it is a builder, you will likely have to work with that builder. If it isn't, then you need to interview builders, or have plans drawn and have builders bid on the project. Don't underestimate the power (and savings) of having someone draw out the plans and have builders compete for the project.

3. Once you have this information in hand, find a loan officer to help with the project. This step may move to position #2 if you need to tie up the lot before planning the house and choosing the builder.

4. I can't underscore enough that an agent can be very helpful in your search as well as some can be very helpful in your building process. Most builders have money built in for a buyer's agent that they will put in their pocket if you don't have one. Find an agent who understands the building process and new construction though, a resale agent bumbling around in new construction might end up costing you more money than they save you.

Cameron Piper
Coldwell Banker Burnet
licensed MN Real Estate Broker
Web Reference: http://www.CamPiper.com
0 votes Thank Flag Link Thu Sep 27, 2012
I agree with everyone else. Get a good lender on your team, and if you feel uncomfortable with the transaction get a realtor on your side as well. The builder WILL pay for it so you owe them nothing. I have seen it go both ways with people wanting to go new construction on having a great outcome.
0 votes Thank Flag Link Wed Sep 26, 2012
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