Central NC Real Estate Search

The Land Buying Process

Steps to Buying Land

Step 1: Check Your Credit Report & Score

Before getting a mortgage or any kind of loan, you should always check your credit. According to the law, you're allowed to receive one free copy of your credit report per year. You can do this by visiting Annualcreditreport.com. Scores range from approximately 300 to 850; generally, the higher your score, the better loan you'll qualify for. Don't forget to check your report for errors. If there are any, dispute them. It may help your credit score. You can also check your credit score for free at www.creditkarma.com.


Step 2: Figure out How Much You Can Afford

You can calculate how much you can afford by starting online. There are several online mortgage calculators that will help you calculate an affordable monthly mortgage payment. Don't forget to factor in money you'll need for a down payment, closing costs, fees (such as fees for an attorney, appraisal, inspection, etc.). Most lenders require a minimum 20% down of the loan amount.


Step 3: Find the Right Lender and Real Estate Agent

Finding a lender on vacant land is different than a traditional home purchase. Most lenders will not loan on vacant land and for this reason we recommend the local Farm Credit agency. Depending on your location, there are 3-4 that we work with throughout NC.

Once you have the right mortgage lender, make sure you at least get a pre-approval. Qualifications are only a guess based on what you tell the lender and are no guarantee, whereas a pre-approval will give you a better idea of how big a loan you qualify for. The lender will actually pull your credit and get more information about you. However, you could even take it one step further by getting an actual approval before you start shopping. That way, when you're ready to make an offer, it will make the sale go much quicker. Besides, your offer will look more appealing than other buyers since your financing is guaranteed.


Step 4: Look for the Right Property

Make a list of the things that are must haves but also a list of wants. Will the property be a future build site? Investment? Recreational? Knowing these key things will help determine if a property meets your needs.

There are many features to take into account when looking at a property. Such things as soil reports, utility access, easements, topography, zoning, etc... All of these items can and will dictate what you will be able to do on the property. This is where an experienced land agent can help you tremendously as many buyers are not sure what to look for on these topics.


Step 5: Make an Offer on the Property

Now that you've found the property you want, you have to make an offer. Most sellers price their property a bit high, expecting that there will be some haggling involved. A decent place to start is about five percent below the asking price. You can also get a list from your real estate agent to find out how much comparable properties have sold for. Once you've made your offer, don't think it's final. The seller may make a counter-offer to which you can also counter-offer. But you don't want to go back and forth too much. Somewhere, you have to meet in the middle.

Once you've agreed on a price, you'll usually make two deposits. One deposit is known as the due diligence deposit. This gives you a set period of time to make sure the property will meet your needs. This time can vary from a few weeks to a few months. Typical items determined during this are whether the soils perk for a septic system, are utilities available, is it zoned correctly, legal access, etc.. This deposit is usually non-refundable should you decide not to purchase the property. The second deposit is an earnest money deposit. This money is held in escrow at the closing attorneys office. In most cases the earnest money is refundable if you terminate the offer during the due diligence period. Both deposits are applicable to the purchase price.


Step 6: Get the Right Mortgage for Your Situation

There are many different types of mortgage programs out there, but as a property buyer, you should be aware of the three basics: adjustable rate, fixed rate and interest-only.

Adjustable rate mortgages (ARMs) are short-term mortgages that offer an interest rate that is fixed for a short period of time, usually between one to seven years. After that, the interest rate can adjust every year up or down, depending on the market. These are good for people who don't plan on keeping the property very long and/or are looking for a lower interest rate and payment.

Fixed-rate mortgages are more traditional and offer a fixed interest rate (and thus a fixed monthly payment) for a longer period of time, usually 15 or 30 years, though they're available in 20 or 25 year terms. These are good for people who like a predictable payment and plan on keeping the property for a long time.

Both fixed and adjustable rate mortgages can have an interest-only payment. What this means is that for a certain amount of time during the loan term, you're allowed to pay only enough to cover the interest portion of your payment. You can still pay principal when you wish, but don't have to if your budget is tight. There is a myth that with interest-only mortgages, you don't build equity. This is not necessarily true, since you can build equity through home appreciation. The benefit to interest-only mortgages is that you increase your cash flow by not paying principal.

Remember to ask your mortgage lender or mortgage banker lots of questions about which mortgage is right for you and your situation.


Step 7: Close on Your Property

Setting the closing date that is convenient to both parties may be tricky, but can certainly be done. For many vacant land parcels there may be leases in place for agriculture, hunting or other recreational activities.

Be sure you talk to your lender to understand all the costs that will be involved with the closing so there are no surprises. Closing costs will likely include (but are not limited to) your down payment, title insurance, appraisal fees, attorney fees, inspection fees, and points you may have bought to buy down your interest rate.


Step 8: Congratulations!

You are now a new land owner. Land is no different than any other thing and it needs to be maintained depending on your type of property. There are many State and County programs which offer guidance but also tax incentives if your property qualifies. Having an experienced land agent is crucial in helping you navigate these programs.