buying land/building a home?

gingerjennyNovember 23, 2012

We would like to build a home in about 2 years. We are wondering if it would be better to buy our lot now and make payments on it so we have equity in 2 years or if we should just wait and buy land/build at the same time.

If we wait we could do a one time closing.

If we don't the land we want may be gone and we will have to look elsewhere. My heart wants this subdivision. There are maybe 5 or 6 lots left.

If we buy now we will be paying interest on the loan vs if we wait no interest.

We are waiting for the housing market to get better before listing our house.

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There's no absolute right answer to your question. Yes, you'll have accumulated some equity but it's probably not going to be a lot because the amount allocated to principal in the early part of a loan is usually pretty small. Once you build the home, you're mortgage will be slightly smaller because of that equity but I can't imagine it having a huge impact. On the flip side, you'll likely owe taxes on the property although they should be considerably less than an a lot with a home on it. I'm not an accountant but I don't think the interest on the loan, nor the property taxes would be tax deductible.

I think this is going to come down to you evaluating the total cost of owning the property for X years and deciding if eventually living in that location is worth it to you. Something else to consider is how home prices are trending in your area and try to conservatively estimate what you might reasonably expect your current home to appreciate vs. the total cost of owning this property.

    Bookmark   November 24, 2012 at 12:35AM
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Just remember, if you buy a lot, you will be able to sell it in the future. My parents bought a lot in a very expensive suburb, desireable town, put the house they were currently living in on the market but couldn't sell it, sold the lot, and ended up buying a different house in another town.

    Bookmark   November 25, 2012 at 8:38AM
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Every time that we have bought land to build on later - we never do. By then our ideas and needs will have changed

    Bookmark   December 24, 2012 at 5:27PM
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My advice is wait on buying the land until you are ready to build. The desire to live in this particular neighborhood is what you will buying if you decide to buy just the land now. Save up the 20%+ down payment on your home/land combo and then when you are ready make the move on both. The interest you would have paid on the lot loan combined with 2 years worth of taxes will probably allow you to reach your savings goal 3-4 months earlier.

Homes are a huge portion of our overall investments, there is absolutely no need to rush the purchase. Keep in mind...part of the salesman's job is to create urgency where it does not exist.

    Bookmark   December 26, 2012 at 11:03AM
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