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Where to Find Affordable Land and How to Get a Construction Loan


If you’re getting close to retirement, you may be thinking about building just the right size and shape house on your very own property — perhaps with a lake, near the ocean, in the mountains or within the forest.

So, how much will it cost to buy your land and build a home?

States with Cheap Land

You can build a home on any size lot. In the city, that might be a small fraction of an acre, whereas in the suburbs, you can find larger lots up to a full acre or more. If you have a farm or live in a rural area, you may have even more acreage available.

According to LandWatch, Tennessee, Arkansas, and West Virginia offer the best prices on residential land. Prices are about 30% to 40% percent below the median average-price per acre on land listed for sale nationwide.

If building a home near the water is important to you, Oregon and Washington offer surprisingly cheap land deals, complete with views of some of the country’s most stunning bodies of water. Of course, these states are pretty wet and cold during certain times of the year. If you prefer warm weather and sunshine, Florida and South Carolina both offer affordable places to buy property and build your dream home. Or, if you prefer lakes, consider rural lots in New York and Pennsylvania.

What about Building Costs?

According to HomeAdvisor, it will cost anywhere from $150,000 to $450,000 to build your own home.

This cost will vary depending on region, square footage, and materials used to build the home. As a rule of thumb, it’s cheaper to build in areas with lower costs of living. There’s also a cost difference between a custom home and a production build, where developers have planned subdivisions with various lots and floor plans from which to choose.

“You should have a plan in mind for how you’ll use your land before you start searching. If you just plan to put a mobile or manufactured home or tiny house on the property, size probably doesn’t matter as much as if you plan to build a large home with amenities like a pool, pool house, and detached garage,” says Kevin R. Crooks, AAFMAA Mortgage Services LCC (AMS) Branch Manager in Wilmington, North Carolina.

“After all, buying land isn’t about finding the cheapest lot, it’s about finding the right lot for your needs.”

Can I Finance All That?

You can’t use traditional home loans to pay for a home under construction. You’ll have to pay cash, use builder financing (which can have a lot of hidden costs), or find a lender like AMS that offers construction loans.

A construction loan is used to finance the construction of a home, and when the construction is complete, the loan is refinanced into a permanent mortgage. A construction loan works more like a line of credit than a mortgage. Instead of the seller getting all of the money at once, you only draw what you need, and interest is only charged on the amount drawn.

Because of increased risk, the interest charged on construction loans may be higher. “But, during construction, you’re making interest-only payments on the amount you’ve borrowed. So it’s a lower carrying cost for the borrower,” Crooks adds.

The term for a construction loan is 12 months, but extensions are available. Because the lender organization has limited surety, it generally insists on evaluating your financial situation, inspecting your plans, and using an accredited builder.

Upon completion, the building is inspected for compliance to the plan and to local ordinances. “At that point, we would refinance the construction loan to pay it off,” says Crooks. “The new loan could be a VA Home loan, conventional loan, or FHA loan.”

One unique feature of using AMS for a construction loan is that when determining your loan-to-value ratio (LTV), AMS uses the appraised value of the home, including the equity in the lot, whereas other lenders might use just the cost of the home. “So if the home appraises for more than the cost, that coverage can be used by the homeowner as part, or all, of their down payment, reducing their out-of-pocket costs,” says Crooks.

We’re Here to Help

If you’d like to learn more about construction loans, please contact us today. You will receive an honest and fair comparison of your mortgage options, including a wide range of low-rate and low-cost mortgages designed to meet your needs. Ensuring you obtain the best mortgage possible is our mission. Get your free mortgage assessment today!

Call 844-247-4208 or contact us today to get current rates and additional details from the AMS team.