Personal Finance

buying land and building house

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  • Mar 10th, 2015 1:28 pm
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[OP]
Newbie
Feb 20, 2014
98 posts
41 upvotes
Ottawa

buying land and building house

is it advisable to but a piece of land and then build a home on it or is it better to get a builder to do all the heavy lifting ?

Also any one has experience getting a loan for buying land ?

Thanks
8 replies
Deal Addict
Jul 11, 2010
1142 posts
219 upvotes
Toronto
You will probably not find any lender willing to give a mortgage on just land. If you default it is a lot more difficult and takes them longer to sell it to get their money back. You would be better to buy a home that is already constructed.
Doug Boswell
intelliMortgage Inc. Brokerage #12326
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Sr. Member
Mar 18, 2012
565 posts
113 upvotes
Getting a loan for land is a bit different. Some banks (TD for sure) do land mortgages but only to 50% of appraised value and at an outrageous rate (outrageous for a secured mortgage).
We recently purchased land. I didn't need more than 50% (I'd advise against doing it anyway if you need more) ended up getting what we needed in a unsecured line of credit rather than the land mortgage, the terms are just way more flexible.
Also we are debating splitting off one or two lots and this would not have been possible with a mortgage charge on the full property.
If you're not familiar with building or unwilling/too busy to do some of the work yourself I don't think building on your own is a good idea. Just my 2cents
[OP]
Newbie
Feb 20, 2014
98 posts
41 upvotes
Ottawa
Thanks for the response. Much appreciated.
Deal Fanatic
Dec 5, 2009
5197 posts
2954 upvotes
But an old beat up house on a nice lot that you can tear down.
Deal Addict
Feb 2, 2011
1610 posts
260 upvotes
Ottawa
tkansara wrote:
Mar 9th, 2015 7:58 pm
is it advisable to but a piece of land and then build a home on it or is it better to get a builder to do all the heavy lifting ?

Also any one has experience getting a loan for buying land ?

Thanks
Let's assume you secure a loan for the land. You'll never get a construction loan big enough to build with that type of liability. Also, I'm pretty sure if I recall correctly, lots of banks force you have to own the piece of land before getting a construction loan.

What's your current situation? Do you own or rent? How much equity do you have if you own? One possible way is to convert your existing mortgage to a HELOC, and using that to purchase your piece of land. The problem with that is now you've lost whatever equity you had to finance your actual build. The general rule of thumb is you should own your piece of land outright AND have 40% of your build covered without any type of loan (meaning cash).

And then, let's say all of the above happens, you have to either hire a project manager to find/schedule/oversee the trades or do it yourself... all the while having to meet the banks strict milestones to unlock more funds to build.

The whole process is NOT easy, which is why it's not a popular route for the common folk without hundreds of thousands sitting around in cash.

Honestly, it sounds like you might be out of your element anyway. My suggestion is that if you want a custom home, on "your piece of land" find a custom builder that's willing to finance the project. It'll cost you more in the end but you don't have to mess around with different loans and such.
[OP]
Newbie
Feb 20, 2014
98 posts
41 upvotes
Ottawa
Thanks a lot for the feedback. Looks like the best/least headache option is to get a builder who is ready to build on the lot with a packaged deal.

Thanks again.
Deal Addict
Sep 21, 2011
1505 posts
336 upvotes
tkansara wrote:
Mar 10th, 2015 8:41 am
Thanks a lot for the feedback. Looks like the best/least headache option is to get a builder who is ready to build on the lot with a packaged deal.

Thanks again.
better buy the land quick, hot item these days , Im thinking of buying some land as well ( i live on 10 acres out in bowmanville )but looking at 80 acres up in Dorset, Bancroft etc but every piece i'm looking at, there's like a few bids on it already lol.
Sr. Member
Sep 28, 2008
556 posts
43 upvotes
I looked into this very same situation not very long ago.

It is possible to buy land and build a house yourself without owning the land outright OR having 40% of the new home in an account. That being said, it is not an easy process and you will be under scrutiny by the lender the entire way and that might end up limiting you in regards to house options. Also keep in mind that with a builder's loan, you only get a % of the funds at certain stages (draws) so even if you see some hardwood on sale that you love and want to save $5000, you can't just go and drop $25,000 on the hardwood because those funds were already allocated to the stage you are at, like foundation. Also you have 1 year to complete the build (according to any lenders I spoke to).

I decided to go with a builder. I shopped around, went through a lot of show homes and houses that were under construction and found a builder that I wanted to work with and was willing to take on the land & building costs and then sell the home at the end. Although there is extra costs to this method, I would recommend it for most people. First, these people are professionals. They will be able to provide direction and advise to you on how to maximize a space or budget for a certain look or resale, etc. Secondly, if you did it yourself and made a huge error or perhaps only a few big errors, it's quite easy to end up costing more in the end than just having a builder do it in the first place. Thirdly, you need to consider what your time is worth and your ability to go overlook issues at the houses with very little notice. If you are a retired teacher or similar, you probably have plenty of time available. If you are a nurse or heavy duty mechanic, you can't just leave work on a whim.

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