Land for Dream Home - get a loan and buy now, or lose the land and save?

jellybeanz

Registered User
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8
Hi all,

I'd be grateful for any advice anyone can give. For the past three years, we've been working on becoming debt-free and saving so that we can build our dream home. We're first time buyers/builders.

Our current financial situation isn't wonderful, I earn 43k gross, partner earns 11k gross, but he has just made a career change and gotten a new job at entry level. We're hopeful he'll move up the ranks pretty quickly. We have just gotten to zero debt, and we have just under 2k savings with 2 kids, and final one on the way.

The area that we currently live in rarely has land for sale opportunities. There is lots of bog land in the area, and the land that is build-able on tends to be massively over priced. Until yesterday, when we saw what appears to be a fantastic opportunity - land for sale at 50k, subject to planning.

Here's my question:

Should we get a loan of 50k, which will take us roughly 5.5 years to pay back and buy the land, or should we wait, save up some money and hope another opportunity comes along?

We could afford to pay back the loan in our current financial situation, but we couldn't comfortably afford to apply for a mortgage of anything above 700 during this 5.5 years if my partners wages don't increase. We're currently paying 675 on rent. So if we bought the land we probably wouldn't be able to start the build until the loan is paid off, or my partners wages increase.

On the other hand, if we wait 5.5 years, we could only apply for 25 year mortgage given our age, which would increase our monthly mortgage payments.

We would probably need a mortgage of 190 - 200k to build the home of our dreams to turn key standard.

I have so many questions!

- If we got the loan, would we still have a hope of getting a mortgage in a couple of years, while still paying off the loan?
- Is it too risky to hope that my partners earnings increase, or is it a bigger risk to let the land slip through our fingers?
- Does land count as a deposit when applying for a mortgage?

We obviously need to do our homework on the land, have a pre-planning meeting, hire an architect etc. - it might not even be feasible to build on it. But I don't know whether to take the leap or not!

I'm really interested in hearing peoples thoughts. If I haven't given enough info, please ask me.

We've been dreaming of building for over 10 years, we want to get this right without putting ourselves in unmanageable debt.

Thanks!
 
As I see it :
You'll need to get PP before buying it otherwise it's a massive risk.
Assuming you do buy it with PP it will have ran out before your in a position to even start building.
To me it doesn't add up, also your build cost seems a little low without knowing the house type.
I think you should keep saving hopefully more land or better still a house will come up when your in a better position.
 
As I see it :
You'll need to get PP before buying it otherwise it's a massive risk.
Assuming you do buy it with PP it will have ran out before your in a position to even start building.
To me it doesn't add up, also your build cost seems a little low without knowing the house type.
I think you should keep saving hopefully more land or better still a house will come up when your in a better position.

Hi Kevin, thanks for your response. We'd definitely be getting PP first, no doubt about that.

I hear what you're saying about it not adding up, that was my concern. We could start building before the 5 years of loan repayment is out, but only under two conditions - we were successful in getting a mortgage, and that my husbands wages increased. In that case, we could afford a mortgage of 1000k per month whilst continuing with the 800 per month loan.

I'm interested in your opinion that the build cost is low - we were given a loose quote from a builder friend for a 4 bed, 1900 sq foot 2 storey detached home. He said around about €100 per sq foot should get us to a good standard - is this wrong? We're not in Dublin, if that matters?!
 
I doubt that you will be able to borrow 100% of the cost of the land or even close to it, 80% would be more like it so your 2k in savings won't be enough.

You say you could afford a mortgage of 1000 pm plus the 800 loan, I'd check first with a bank what sort of salary they require for those type of figures. I'm afraid just because you think you can afford it does mean the banks lending criteria would approve you for an amount like that. Perhaps check with a few lenders or a broker what amount you could borrow based on your best case scenario salaries for 5 yrs time (bearing in mind everyone is only guessing what criteria will be then!) and 3 children. The stress testing that lenders do with the repayments and their minimum net disposable income for 2 adults and 3 children will have an effect on your borrowing capacity.
 
I assume the €100 per sq/ft is just to build the house.
I dont want to burst your bubble, but dont forgot to calculate the cost of designing and planning the house, the cost of getting the site ready for building, building a proper fence around the site and a nice wall to the front, the cost of an ESB connection, the cost of a water connection, diveways and landscaping after the house is built, a garage/shed for fuel, etc. All of these can add up to a fair % of the overall cost. Dont forget as well that you now have to build to stricter building regs than you did a few years ago which also add to the cost.

I'm from a rural area originally. Very few new houses are being built in the area and you can still buy a very decent second-hand house for the 200k mark. I think by the time someone buys a site and builds a house on it, it will cost more than what its worth
 
You're in a good place financially. Keep saving. Don't buy the site - there are too many negatives connected to it.

Re. Planning Permission ... you'll have 5 years to build if you get planning. You can't just stick in a foundation and say you're covered. You'll have to take the house to roof level, have windows and doors in - basically it would have to be sealed up prior to the 5 years expiring. You'll not have the money to do that.

Save, save, save ... skip the site this time. Too many negatives. Your heart is ruling your financial head at the moment. Sites will come up again and you'll hopefully be in a better position to move on it then.
 
For the past three years, we've been working on becoming debt-free and saving ...
Congratulations on getting debt free, and getting a decent emergency fund together. It's a big step toward long term financial security.

... so that we can build our dream home.
Alarm bells are ringing.

We've been dreaming of building for over 10 years
It shows. I think you need to take a huuge step back from the whole situation. You've got more important priorities than building houses.

we want to get this right without putting ourselves in unmanageable debt.
You will get there if you play your cards right.
1. Save 6 months worth of living expenses. This is your emergency fund. It's for emergencies only - christmas doesn't count.
2. Kick at least 15% of your combined income into a pension
3. Save at least 10% of the finished cost of the property.

Most likely this will all take a few years. Be patient - it will start to get rolling once partner's career gets moving.
 
I cannot offer you much advice on this but one little nugget and a side warning - if you have and own a site of land and wish to build on it, two banks of KBC and EBS will count the land as the deposit thus offering you the full cost of house construction.
I would be wary of the €100 per sq foot that is so often bandied about. This is sometimes the case when you have people on hand for various jobs such as electrics,bricklaying etc. It is also lowest standard finish and most advantageous areas for building (eg Donegal). Always over estimate. Once off dwellings are very hard to pinpoint to an accurate build cost.
Whatever your decision, don't regret it. Best of luck.
 
"Once off dwellings are very hard to pinpoint to an accurate build cost".

Apart from the fact the once off house may not be connected to the mains sewerage , I cannot see how your statement has any accuracy at all. In fact, i'd imagine it would be easier to price the job, just my opinion.
One thing I would say though, it's cheaper to buy a new house in an awful lot of the country than it is to build, even if you're doing the build yourself.
 
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