If you are looking to start your own homestead, the first step is to get some land to build it on. We started with 20 acres and built out from there. If you plan to do the same, these financial tips on buying land to start you homestead could be a great place to begin your research.
When we set out to purchase some land for our homestead, we found that it was very difficult to secure a loan on unimproved land. I am sure that banks have become more open to it since, but they are just not fans of financing a piece of property that you will need to spend money to improve. Just about any investment book you read will tell you that it’s a bad idea to lend someone money, expecting to get paid back, to purchase something that they will need to spend more money.
After doing a ton of research, we found what we were looking for and how to finance it. We have been thriving on our little homestead ever since. Since then, I started this blog to help others get to the point where they can be living healthy and happy on their own just like us. I hope these tips will help you in purchasing your first land to begin your homestead!
As I mentioned above, banks are not always willing to give you money to purchase land that you will need to spend money to do anything with. They are well aware that you either have money to build with, that you are keeping from them, or will need more money in the future. That makes you less likely to be able to pay them back in the future, which makes it a high risk loan.
Another reason is that the collateral for a home loan is your house, which can be more easily valued. They send someone out to evaluate what the market value is on your house to ensure they can get their money back by selling the house if you stop paying them. With land, the value depends largely on what someone is willing to pay for it. Bank owned land almost always sells for significantly less than what people believe is the market value, so they almost always lose money.
You will need to do your research and get pre-approved by someone who is willing to loan you the money before you start looking. There are plenty of small banks and credit unions out there willing to make the deal, but you will need to do a little footwork in order to make it happen. As always, your credit will have a huge impact on whether or not you get accepted and what interest rate you will get for your loan.
Because of the risks highlighted above, banks will need a bigger down payment if they do give you a loan. They need you to prove to them that you have trustworthy and have the ability to pay them back. Most unimproved land loans will need between ten and fifty percent down in order to make the deal happen. That percentage will vary greatly depending on your credit score and level of monthly income.
While there is not much that you can do about having to pay a sizable down payment, it is important that you know it is coming. Start saving now so that you can get your homestead started!
Just like when buying a house, you will need to make sure that you do your research to find out what comes along with your purchase before signing the deal. I have heard plenty of horror stories of people buying land and starting to build before finding out that the neighbor has rights to all the minerals on the property for another two years. Ask the real estate agent what they can find and take a trip to visit the local count clerk.
Too many people go out and purchase land they want to use in the future and never get around to doing it. Some just never find the time, but most find that they don’t have the money to improve the land because they are paying so much for it. If you are going to get a loan on the land, make sure that it wont handcuff you from being able to do anything with the land when you are ready.
We purchased our land two years before we go around to starting our homestead. They loan payment tied up most of our left over money at the end of the month, but we had enough to save up to begin construction. The moment we broke ground on the new house, we put our suburban house up for sale, having faith it wouldn’t sell before the new house was ready. As you might expect, that plan failed miserably and we moved in my mother-in-laws house until the new house was ready. But the moral of that story is that we had the money we made from the sale of our house to finish building our new house on the homestead.
Keep in mind that you will probably need to spend money on the means to generate electricity and have water. A homestead can’t survive without water and sometimes it takes more than you were expecting to get it.