Buying Land With Your Home Loan
There are important considerations to make in such cases. FHA mortgages allow qualified borrowers to use the loan to purchase land, but there are some things to know before you get started.
FHA Loan Rules for Buying Land
The FHA Lenders Handbook, HUD 4000.1, states that an FHA loan can be used to buy land and purchase a home at the same time.
What you can’t do with an FHA loan in such cases? Buy a plot of undeveloped land with no immediate plans to build. The land purchase must include plans to build, or the loan won’t be approved.
Things to Consider Before Purchasing Land
Zoning is one of the first issues to learn about, especially when building an entire home or having one delivered and installed on a permanent foundation. Zoning issues will vary by the housing market, it’s not safe to assume the practices acceptable in one market apply in another.
The location of the land is also an issue. How close to a commercial or industrial park is your potential new home? How close is it to a gas station, movie theater, or busy highway?
Check the Details on the Deed
Deed restriction issues are old hat for those who have experience buying property. But if you’re a first-time home buyer, it might not occur to you to check the deed for special restrictions such as a maximum dwelling size or restrictions on property types.
Once you’ve gotten past the planning stages of a home loan and are interested in making an offer, the deed issue becomes a much larger factor in the process.
A similar issue? Easements, which can include agreements or permissions for third parties (think water, garbage, electrical utilities) to enter your property, hook up services or disconnect them, etc. You’ll want to know the contents of the easements and how they affect your ability to use or develop the land.
Does the local utility serve the property? If not, what are your options? What rights and responsibilities do you have under such circumstances? These are all good things to know before committing to a home loan.
You should also review the entire property to ensure there are no outbuildings or other structures you might have to pay to remove once the land is yours.
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