Before the rise of merchant builders and developers buying swaths of land, subdividing them, then building houses to sell with the lots they sit on, homebuyers bought the land themselves, took out construction loans, and hired builders to erect their houses for them…some even built their homes themselves! But, the recent shift to suburban and rural homeownership has brought the spotlight back to this process, known as on your lot construction.
“There’s something deep and personal about building on your own land,” says Eric Alaird, marketing and sales director for Houston-based Tilson Homes. “It’s a very American thing to do.”
Why is On Your Lot Construction Booming?
Since the pandemic onset, depleted inventories of existing single-family homes have left motivated buyers itching for alternatives. Jason Walter, CEO of National Land, said, “with all of the traumatic events of 2020, people are looking to not only invest in land outside of the city, but they are also wanting to live on the land they buy, to be able to breathe the fresh COVID-free air and reconnect with the great outdoors.”
Tilson Homes built 800 “on-your-lot” houses last year, nearly double the scattered-site units it normally builds. A quarter of the houses Bosgraaf Homes built in 2020 were on ground the Holland, Michigan-based firm didn’t own, reports Michael Bosgraaf.
Another factor? Buyers are ready for something different, and for more control. The majority of Tilson Homes’ customers are move-up buyers who “are tired of the home owners association telling them what to do or the neighbor’s kids playing basketball at 11 at night,” says Alaird.
Ninety percent of Tilson’s houses are built in unincorporated parts of the Lone Star State. But now, with the pandemic, more builders are recognizing the opportunity the OYL market offers.
Jeremy Jackson of JC Jackson Homes in New Bern, North Carolina, says he “learned the hard way” that some of his prospects wanted a location different from where he was building production houses. So, he’s giving it to them by offering to build any way they want, either in one of his communities or on their land.
If you don’t already have land, no need to worry. Many on your lot builders have inventories they’ve picked up along the way. For example, Lacrosse Homes will build on your lot or on its own list of “spot lots” throughout Maryland’s Eastern Shore. Florida-based Rutenberg Homes maintains an extensive listing of available lots. And, Caruso Homes in Crofton, Maryland, will help you find ground where you want to put down roots.
What OYL Buyers Should Be Aware Of
On your lot construction is a totally different process that “requires extra hand holding,” says Alaird. And, adds Jackson, it takes longer, as most of the work must be done prior to starting construction.
First, there’s the financing. You won’t need just one loan, you’ll need three – one to purchase the land, another to pay for the home build, and a third to finance the total cost of the land and house together once the build is completed.
Additionally, in a typical subdivision, the streets, curbs, and utility lines are already set, and each home’s share of the cost to use them is built into their price. But, that’s not the case where most OYL builders operate, meaning there’s a cost to setting up that infrastructure — and the builder isn’t going to guarantee those costs. Even a detailed field report is, at best, an estimate because you never know what you’ll find once a shovel or front-end loader starts digging.
In one case, an underground river was discovered 30 feet below ground level, so the lot had to be “demucked” and then filled. In another, the house had to be built on pilings because of a high water table. And in another, a “little one liner” deed restriction forced the buyer to put up a $3,000 privacy wall.
Financing On Your Lot Construction
You can skip the aforementioned complicated loan trifecta by securing a construction-to-permanent (C2P) loan, which covers the entire process. It starts as a loan to buy the land and build the house, and then converts to permanent – or “take out” – financing when the builder finishes the job.
The advantage of C2P financing is three-fold: (1) The builder doesn’t have to finance his work, so he can price his product for somewhat less. (2) There’s only one settlement, which means only one set of closing costs. (3) You can sometimes borrow at a slightly lower rate than you might get for a regular home loan.
As a note, not every lender offers (or even knows about) C2P loans, but don’t worry; many OYL builders can help you find funding.
No Two are Ever Alike, But They Might Be Close
“Each home site is different,” says Jackson. “They’re rarely ready to build on. There are no engineering plans and sometimes there’s not even a clear access road.” While no two sites are identical, some on your lot construction builders aren’t interested in building custom homes. Some, like Tilson, will offer to build based on your plans or one of their own models.
Others, like Bosgraaf, require their clients to choose from among several design plans the company is already comfortable building. The Michigan builder says his company wants “to keep it simple,” so it focuses on “an all-inclusive price with few extras.” But at the same time, it does offer a “far more elaborate” set of flooring, cabinet and countertop selections than the typical builder.
Want to Learn More?
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