The first step in your home building process is finding a good place to put it. Before you apply for your loans, you'll want to find the perfect site on which to build your home. Plan on spending a lot of your spare time looking at both land and lots. But aren't they one and the same, you ask? Nope. There are quite a few differences between lots and land. A lot, by definition, is a piece of land in which a house is ready to be built. This means that it either has all of the utilities already installed, or is in the process.

Land, by contrast, is any piece of property without a house on it. Land usually isn't ready for building. If you buy land, you are probably going to have to do a bit more work than if you buy a lot. You'll need to do things like lay roads and put in the utilities before building begins. If you buy land, chances are you'll need to allow extra time to complete your project.

Finding the Perfect Land

They say location is everything, and that goes for the lot or land you'll build your home on, too! Choosing the right land can mean the difference between enjoying where you live and not enjoying where you live. So, how do you find the perfect piece of land?

The first step is to ask yourself some questions. First of all, how much land do you need? If your dream is to build a barn and have horses, you are going to need more than if your dream is to accommodate a swing set. Do you want to be around lots of neighbors in a city location, or is privacy important to you? Does it matter to you whether the lot is flat or sloped, and do you prefer sun or shade? What kind of views does the land have? Is the school system in the town good? Is it noisy, or quiet? How close is it to power lines and other utilities? Do city plans call for any changes in the neighborhood? What kind of power, water, and sewage is available? You get the picture. Make a list of things that are important to you, and refer to them as you look at each lot or piece of land.

Finding a lot or land can be one of the most difficult processes in your home building experience. First of all, finding an agent who sells land isn't always easy, as many prefer the larger commissions that home selling provides. However, some agents actually specialize in selling land, and if you can find one of these you are in luck. These agents will not only work hard to help you find your dream property, they will also know the ins and outs of planning and zoning. And that will be a huge help!

Some people choose to look for land on their own. This means trolling neighborhoods that are in the process of being built for lots for sale, as well as taking some drives in your spare time in areas you like to see if there is any land available. Your newspaper, local realty magazines, and the web are also good sources of lots and land for sale.

When you finally find a piece of land you think you might like, ask yourself the following questions:

• How much is the land going for, and how does that compare to other lots that have sold in the area?
• Is the lot or land amenable to building? You want to make sure you are not buying a beaver pond or marsh!
• How much is the ultimate cost of the land going to be, and is it worth it?

The last question is probably the most important. When all is said and done, you want to know that not only can you afford the final cost of your land, but that you are getting your money's worth. You'll need to factor in things like how much it is going to cost to install a driveway, sidewalks and street lighting if needed, whether the layout of the lot necessitates a special foundation or more earth moving than normal, how much it will cost to get things like electricity and other utilities to your build site, etc. Consider all of these things carefully, and never, ever buy land with your heart. Always buy it with your mind.

The Wonderful World of Zoning

Okay, so you've answered all the hard questions and think this patch of land might be your future paradise. Does the town's Planning and Zoning department agree?

Yep, most cities and towns have zoning regulations that they adhere to. What exactly are zoning regulations? They tell you where, and what, you can build.

Finding out the zoning regs attached to a particular piece of land is as easy as making a quick phone call to town hall. Most housing lots are zoned R-1, which means that they can support one residence. However, there are lots of other zoning designations and again, the local government should have a guide that explains all the designations to you.

Did you know? Just because you like the zoning restrictions, don't think you are home free. Zoning affects only the general plan of the property. There may be more detailed restrictions for building, which you can find in the property's CC & Rs (no, this is not a band from the 70s . . . it stands for covenants, conditions, and restrictions). Your neighborhood might also have some restrictions when it comes to style, size, height, and even color. Best to check these things out before you make the land purchase!

The property zoning restrictions will also tell you what the setback is, which tells you how far from the edge of your lot you must build. Setbacks can often determine what size home you can build, so be sure to pay attention to them.

It is also very important to consider the size of your home when you purchase the lot. Cities and towns often have regulations when it comes to the size of the lot and what size house it can accommodate. Do your homework now, before you break ground. The goal is to avoid costly mistakes down the road.

Buying Your Land

You've found the perfect property and you've done all your homework. So now you have to buy it. Buying land isn't like buying groceries. You don't just accept the price in pay it. Instead, it is more like buying a car.

The first thing you need to do is figure out how much you are willing to pay for the property. You have a budget, and have a fairly good understanding of how much of that is going to go toward the construction of your home. How much do you have left over for land? Make sure your offer matches.

What's the next step? Presenting your offer to the seller. You'll want to give the seller an offer form, as well as a deposit-one to three percent of the offer will do. The check is held in escrow until the offer is accepted. So what now? Let the negotiations begin!

That's right, you and the seller will participate in a series of offers and counter-offers-hopefully not too many!-until both of you are satisfied. In the right scenario, both of you will give a little until you come up with a compromise that both of you can live with.

Next thing you'll have to do is find a lender. Our best advice? Be picky. Not all mortgage lenders have experience with land loans, and in order to ensure that you buy a product that fits your needs you'll want to work with someone who has a little experience. Ask friends and family who they have used for land purchases, and when you find a lender you think you can work with ask how many land loans they have done. Nationwide lenders are often a good route to go, as they have fewer restriction and more products than local banks, which will up the chances that you buy the right product.

Once you find a lender, you'll fill out a loan application. You'll need to arrange for an appraisal, and will need to give you lender access to your credit report. You'll also need to furnish three months of bank statements, two years of W-2s, your two most recent pay stubs, and two years' tax returns.

Once your application is on file, you'll open escrow with either an escrow company or your attorney. This means depositing your money with a neutral third party while you and the seller go through the steps of completing your agreement. Now is the time to really go over the property with a fine-tooth comb to make sure you are getting what you think you are. Do all your research at this stage.

Picking the loan's length of time is a very important part of the process. You'll also need to choose between a fixed rate loan or an adjustable rate loan. In some cases, your qualifications will cause the lender to make some of these hard decisions for you! However, if you have some choices, and are planning on building right off the bat, and adjustable rate mortgage is the way to go. You'll pay a lower interest rate, and by the time the loan is scheduled to adjust you will have most likely rolled your land loan into your construction loan.

When you consider the many processes, from the time you buy you land to the time you break ground can two or three years. To that end, make sure your land loan is long enough that it will take you up to the time you roll it into your construction loan. Always be safe by adding a little bit of time. Again, you never know what will hold your process up, but chances are something will along the way!

Once your loan is approved, you'll bring your cash to escrow and sign the loan documents. You'll have loads of documents to sign, but in the end you'll walk away with the most important one of all: the deed stating that the land is yours!

Did you know? You don't have to pay off your land loan before you get your construction loan. You can easily roll your land loan into your construction loan when you get to that point.