Am I thinking of this the right way?

GavinAllymomma · **Am I thinking of this the right way?**

I've mentioned here before that we are wanting to move into our "dream" or "forever" home in 3 years or so. Well today I found a piece of land for sale on the exact street I'd love to live on. I mean it couldn't be in a better spot! I'm trying to convince DH to put some of the money we were going to put into our house savings fund into payments on the land which we could use as a down payment when building a new house. I'm sort of looking at it as saving for a down payment, but in a different way. Am I completely off base here?

boninikids · 01-30-2008, 10:15 PM

In my opinion I think it is a smart thing to do start paying now while the land is cheeper then footing the whole bill when your ready to buy. And if you have made sure schools and the area is safe and the property taxes are good and dont look to rise dramastically then go for.

desertmom · 01-31-2008, 12:06 AM

I'm missing something. I think the idea is good, but how do you use the land as a down payment? Aren't you planning to build the dream house on the land? You'll still need a down payment and cash anyway. Or do you plan on selling the land for a profit, instead and use that money as a down payment? Then, you are speculating, hoping the value will go up, rather than down, which is happening in many areas currently.

If you're planning on keeping it and building on it, it won't be considered a down payment. It will be considered an asset, but you'll still need cash. It would probably benefit you to talk to a mortgage company/your bank and see how they look at the build loans.

GavinAllymomma · 01-31-2008, 12:24 AM

Some of the lenders I've talked to would take the equity in the land toward the downpayment (some of our smaller local banks). And if we were not able to do that we would have already "paid" some on our new real estate in advance instead of financing it over 20-30 years. Like I said, I'm wondering if I'm looking at this the wrong way. I just don't want to make a mistake. Payment wise it won't be a problem, but in the long run is it smart you know?

cathleeninnh · 01-31-2008, 07:48 AM

Speaking from experience here. Yes, whatever equity you have in the land can be used as down payment when you build. If much time has passed you will have to pay for the assessment of the land.

But red flags always go off when I here the word forever. I don't know how many times I have heard that a house is the forever house and a year later life has turned upside down. Heck, my life has turned upside down many times and I imagine it will again. Don't plan for forever, plan for many possibilities, and roll with the flow.

It is easy to get a vision that is appealing and head that way. But all along the way keep thinking of whether there is flexibility in there.

Just my two cents.

Cathleen

desertmom · 01-31-2008, 09:51 AM

If you do your due diligence and make sure all is sound, title check done, etc., and the property is one you would buy if you were ready to build, then buying during the downturn could save you money, BUT, as the last poster brought up, you will have to pay taxes and insurance on the land (at least liability insurance, probably-ck w/your insurance company), and you'll want to look into title insurance. Make sure you have the water rights, access rights and all...you'd hate to buy the property and then find out you can't get on it because someone else owns all the land around it, or that you can't live on it. So I'd see what that would all cost and ensure you can and are willing to pay those costs in the meantime. If you know that's where you are going to live, and especially if you see the value escalating, it could be a sound investment. If you have to unload it, could you? Look at your ways out if you needed one.

GavinAllymomma · 01-31-2008, 10:22 AM

Thanks for all the input ladies. I want to buy and just need to get DH on board! I know all about the land as far as taxes and water/sewer. I'm contacting a real estate attorney today to find out about the deed search and things of that nature. I REALLY want this so I'm praying it all pans out!

Cookie2 · 01-31-2008, 11:26 AM

Do I understand this correctly? You could buy the land with cash from savings that you currently have? You wouldn't have to borrow to buy the land? If so, then I'd buy it. Be sure to haggle! Bare land is very difficult to sell and you have the edge in getting a really great price on this property.

cathleeninnh · 01-31-2008, 11:34 AM

If you have to borrow to buy the land, you won't get as good of an interest rate. That is because raw land is not something a lender wants to be saddled with. It is hard to sell. And you probably won't build much equity before you want to build. I wouldn't count on the market giving you equity in the next couple of years.

We bought 5 acres last year with cash and will build this year. The money we put into the land is enough to give us 20% equity in the property after the house is in. That means no PMI and no more down payment.

Cathleen

GavinAllymomma · 01-31-2008, 11:43 AM

No, we would have to borrow the money to buy the land, but it would be a short term loan with a decent rate. And the monthly payment would be well within our budget. We had an amount in mind we were going to start putting away in our "house" fund, but I would put a portion of that toward the land payment instead.