Okay y’all. I was originally going to put this in a blog, but what better place to help other people with what I’ve learned than here. There will be several posts with information about this process. Also, YMMV, so keep that in mind. This is just a snapshot of our experiences with this particular situation. Our project isn’t done yet, but I’ll update as we go. Strap in, because I’m verbose.
[Quick disclaimer: I’m not an expert! I know that might come as a shock, but these blog posts are based solely on my experiences. I cannot claim legal know-how or appropriateness. It’s up to you (yes, you!) to check the validity of my statements and do your research about what’s right for you.]
Whew, that’s a lot of money!
Before we jumped into searching for property, we had to figure out if it was financially feasible. Like most people these days, we have debt. That’s unsurprising, but the question became: how can we work to eliminate debt without stressing ourselves out?
It wasn’t easy.
The first thing we did was print three months of bank statements. Each item was given a category. This includes everything from income and fuel to each individual pet. We threw all of those numbers into a spreadsheet to see how much we were spending (per month) in each category. From there, we created a budget for each category.
Now comes the hard part. How do you pay off debt faster than you are right now?
We chose to use the snowball method. If you aren’t familiar, please visit Dave Ramsey’s site for a thorough explanation.
The quick run-down is this:
Make a list of all your debts
Arrange them in order from smallest to largest (not taking into account interest rates or anything else–literally smallest balance to largest)
Using your budget, put all of your extra money toward that debt until it’s paid off
Once that debt is paid off, you then roll the payment and extra money you were shoveling at the previous debt onto the next largest one
Rinse and repeat
You may be asking yourself- okay, how do I have any spending money? Some people who choose to do this method don’t give themselves any wiggle room. They are 100% debt-focused all of the time. We didn’t do that. Instead, we (T and myself) each have a budget, too.
We opened separate checking accounts using an online bank called Simple. Here’s a link if you’re not familiar. Why did we do this? We wanted a place to put our personal budget funds completely separate from our “house” account. This means no overdrafting “accidentally” from money that’s supposed to be used for debt. This means when my money is gone, it’s gone.
Let me tell you how much this has changed my spending habits. I was so scared to run out of money that I didn’t spend anything the first month. That’s right–nothing for my personal use in the first month. I slowly eased up on myself. I’ve purchased some clothes and other small things (like books! Always books). I’m pretty conscious of that budget. On that card, I have a minimum balance that I don’t like to drop below. It’s for my personal emergencies and if I just really have to have something.
What has this meant for our debt? We doubled the amount going into savings and have still been able to dump a lot of money toward our smaller debts. One has already been paid off and now we’re working on those pesky student loans. The goal is to continue until we’re debt free.
Considering the point of this blog, that will be… never. But I can dream, right?
How does this apply to the homestead venture? Well, we had to make sure we had enough money not only to buy land, but also to build.
The first thing we did was find a lending institution. We chose a bank based on a recommendation from someone who recently built a home and had good things to say about them. You may not know anyone who’s done this, so what do you do?
Look at the bank you use personally. Do they offer the type of loan you need? We were looking for a lot loan and a construction loan. Not all banks provide construction loans due to the risk involved. Look around. Make appointments. Ask questions. What are their rates? Is it a fixed rate or a balloon payment? What percentage do you need to put down? Are there restrictions on the use for the lot?
Thankfully, the bank we chose has been wonderful. The lender emails us (at minimum) once a week to see where we are in the process and has been more than helpful in answering all of my many inquiries.
We had a list of questions based on research I’d done about the purchasing process:
How much do we need to put down? (Typically a percentage of the purchase price.)
What do we need to provide to be approved? (Bank statements, proof of income, current debt information, etc.)
How long does the approval take? (Forever! No really, it felt like forever, but the majority of this process is waiting for paperwork to be completed.)
How much are we approved for? (Way too much! The key here is asking them to break down how much your payment would be-including interest and taxes- in order to figure out if you can afford it. We ran through several scenarios based on large ball-park figures to see what payments would run us. This is where that lovely budget comes in!)
Where is our down payment coming from? (We used a HELOC, or a Home Equity Line of Credit. This means we borrowed against the equity we have in our current home to pay the down payment on the land purchase. However, you still need to have funds set aside in savings. How much will depend on the amount you need to put down and what your end goal is. Talk to your lender for details about how much you need to have readily available.)
How do we put in an offer on something knowing we’ve been approved? (The lender should provide you with proof of financing. This is typically just a letter stating the amount you’ve been approved for.)
So we were approved for a lot loan. Now what?
Time to find land!
How did we find and choose our land?
Like everything else, it started with a budget. We had to establish the purchase price maximum we were comfortable with based on the monthly payment amount we would have. Your lender is great for this. They can run scenarios based on purchase price and amount down to let you know what an estimated monthly payment would be. Use your resources! This is what they’re there for.
Keep in mind that you don’t want to overextend yourself from the start. Your maximum budget should not be what you aim for, but you need a shelf, somewhere to stop. Do your best to get the most for your money, but be ready to wait for the right property to come along.
After a budget was established, we had to choose a location. I wanted to keep my drive to work the same or less and that wouldn’t change T’s drive too much, either.
We took a map and pinpointed important locations (mainly my work and our current home, as we like the area). We drew a circle around it that would be about 20 minutes from my work. That was our search radius. Write down the cities inside that circle and start searching.
There are so many sites to find properties on, so look at all of them. A lot of properties cross over between sites, as they are coded to search and pull that information as it becomes available. However, some are only on one site until it’s been there for a while. Take your time and be thorough.I will note that T had different search results than I did, so play around with the options and tags. Sometimes being less specific will yield better results.
For us, the answer was a mixture of horses, other small animals, and growing vegetables. We looked for a property that was in an easily navigated shape with enough land to accomplish those things. Our minimum acreage requirement was five acres. Some properties are in odd L shapes or wedges that would be more difficult to utilize for a specific purpose. That’s why it’s important for you to have some idea what you’d like to do with your property.
Do your research!
County auditor sites are your friend. They provide a vast amount of information based on the property you’ve found. If the property doesn’t have an address due to it being vacant land, grab the parcel number and get searching!
Look at past sale prices. When was it sold last and for how much? Has the market gone up or down? Also check sale prices and values of properties in the area. Do your own comps.
What zoning does the parcel fall into? This will tell you what uses the property can be utilized for and what restrictions you may face. Though you can apply for re-zoning once purchased, there’s no guarantee of this being approved. We were lucky enough that the parcel we have is not zoned. It defaults to the county guidelines for most things. That made it easier to research and also provided us with more clear resources to contact.
Is the property in a flood plain? There are maps which tell you where the flood plains are. There are different zones based on risk level. If you’re trying to build in a flood plain, you will be required to have flood insurance by your mortgage holder. One (completed) house we looked at would have needed flood insurance and about six months after we considered it–it flooded!
To check flood zones, visit FEMA’s search page: CLICK HERE
Are you in an area that’s been mined? There are maps which can show you where old mines are located. While some companies filled their mines per code, many didn’t. This can lead to ground collapse and continual shifting of your soil. This is important if you plan to place large structures on your property or just don’t want your assets falling into the center of the earth.
Utilities! While some counties make this information readily available, be sure to check your specific parcel–gas, electric, public water and sewer, and perhaps the cable/internet providers. Even if your neighbor has gas, that doesn’t mean the line goes to your property. Also, check with the utility companies to see what connection fees are and if they provide any line as a courtesy to the customer. For example, the gas company here will provide up to 100′ for free.
What is the lay of the land? Check topography prior to going to see it. Is it relatively flat? Do you want rolling hills or does it have a sharp drop-off? This will affect the water drainage and where you can place buildings on the property. Site preparation, including grading, can cost you more money than you’re prepared for.
Visit the property–without an agent. I’m not advocating for traipsing around on someone’s property without permission. Instead, drive by and take a look. If the road isn’t busy, pull over and take pictures. What can you see? Visit at different times of the day. Why? Look at traffic, noise, light pollution. If possible, come when the weather is bad. This was very important to us. There was major flooding during the time we were looking at buying this property and I went out probably four or five times to check water levels. Thankfully it stayed pretty clear of standing water! This is also a good time to have a chat with the neighbors. Is it quiet? Any issues with neighbors? Are they happy there? All good things to ask.
What about a realtor?
Most buyers start this process by sitting down with a realtor. The realtor will take a bunch of information about what you’re looking for and call/email you with suggestions for properties to tour. This is both good and bad.
If you have a motivated realtor, they can often catch new listings by word of mouth and funnel them to you. Sometimes, they’ll even do some research.
More often than not, you’ll get added to some software or mailing list where you might get a couple of suggestions for properties, but you might not. This is passive work on the part of the realtor. They’re not dumping a bunch of energy and time into a potential buyer they may not get a commission from.
My suggestion? Do the work. When it came time to put an offer on the property, we called the number on the sign. However, that realtor only represents sellers (and wasn’t overly helpful, which seems odd since her interest should have been in selling the property). I quickly received a call from another agent in that office–but this one represents only buyers. While she was helpful and ultimately made the sale, she didn’t do the majority of the work for us. We did have her check the public sewer connection as the maps were a bit confusing. She called me back within the hour, so kudos to her!
Also consider your offer price. You can low-ball all you like, but what some realtors don’t tell you is that sellers often don’t even want to hear low-ball offers. Offer something reasonable. This is why you do your homework on the property to see what is reasonable.
Why did we pick this property?
That’s the big-ticket question, isn’t it?
It’s only a 15 minute drive from my work.
The property is a little over six acres
Full asking price was within our budget (though we didn’t offer full price)
The parcel is a large rectangle, which means easy layout of buildings and pastures and the like
The land is relatively flat. Slight incline toward the road. This means water and drainage will naturally flow off our property to the back.
The neighborhood is quiet. Farmland on two sides. An older couple with another six acres beside us. Our neighbor across the way came over to meet us. Told us he was very happy living there.
Behind us is currently farm land, but owned by a development for senior residents. Our elder folks make good neighbors.
Oddly enough, finding and purchasing land was the easy part. We spent a good deal of time waiting on the bank to complete paperwork, but it was a relatively smooth process from start to finish.
Do you know what’s even harder? Choosing the right builder for our home. That’s the next saga!