Buying vacant land to build on

If you are considering buying a land in BC, you need to be informed to avoid future problems after buying the land. Also, you will need to know about a land loan if you don’t have enough money and you are planning to buy a piece of land. This article will help you understand all about buying a vacant land in BC. Required down payment on vacant land in BC

The type of loan that you will use to purchase your land mainly depends on what you want to do with the land you are buying. People buy land for different uses, e.g., to hold on to a future investment or develop it fast enough by setting up buildings after closing. Banks do not like offering loans to land purchases which have a speculative use. Therefore, ensure that the land is zoned for the use you’ve in mind, i.e., take a professional survey on the land. If you are planning to buy land, you should understand that the hardest loan to take is for a piece of land that does not have any improvements or infrastructure in it. You should also understand that you will have to pay property taxes on the piece of land bought even if you don’t have any infrastructure or connection to utilities whatsoever!

When buying a piece of land, knowing how banks view loans if important because it will help you take the best deal on the table. For instance, if you happen to take out a mortgage on a home purchase, your bank realizes that you’ve fixed interests in staying out of default because you don’t want to leave your home whatsoever even if your finances get tight. On the other hand, if you have a vacant land and either your income is failing, or you’ve other emergency expenses such that you cannot be able to pay for the land, you have to let some land enter foreclosure because you will not lose any property. Hence, expect a higher interest rate and also a higher down payment rate to a vacant land as a justification of lending to a land without any improvements.

How to buy land in BC

When buying a house on the land, you need to put at least 5% down in a high ratio loan or 20% or more in case you want a loan without mortgage insurance. However, when taking a land loan, expect to put 20 – 25 % down with the differences in percentages resulting from the policies of the lender, how you’ve planned to use the land or the piece of land to be bought.

Therefore, before you start off land buying process, consider the following questions before you make an offer:

• Is the city or province considering rezoning the piece of land or part of it?

• Do the land have restrictive covenants that would restrict you from using the land as you intend?

• Does the piece of land have a proven source of water? If it does, how deep is the water source?

• Does the land have a system to remove waste water from the property? If the need arises, is it possible to put up a septic system?

• Is the title deed clear on the property? If not, does it have a list of liens already in place?

• Do local or provincial entities provide any services to the land, e.g., trash and recycling pickup, email delivery, etc.?

• Does soil contamination have any problems with the use of the land?

Land transfer tax

There is a registry of owners of each property in each province in Canada and anytime the ownership of property changes; an applicable property transfer tax is incurred.

This transfer tax kick is when someone:

• Acquires and registers interest in a particular property

• Takes over possession of a lease, life estate or acquires the right to purchase a particular property

• Gains additional registered interest in a particular property

It is important to know that, the dollar amount of tax varies depending on the market value or the value of any improvements, e.g., buildings. However, if you are buying a pre-sold strata unit (e.g., buying a condo before its completion), you will have to pay a different tax rate. On the first $200,000 or less, you will have to pay 1.0% tax while on the rest above $200,000, you will have to pay 2.0% tax. You will, therefore, have to calculate the transfer tax rate with the value of the property. However, if you cannot be able to do it, you can hire a financial adviser or any other expert to help you understand how much you need to pay for the property.

When buying any property, understanding the following is vital:

1. What is a fair market value? This refers to the amount a willing buyer would pay to a willing seller for a particular property for both the land and improvements in the land. An open market is often considered as a fair market value.

2. What is an open market transfer? An open market transaction refers to a transfer where anyone who has interests in buying the property is offered a chance to submit an offer. For example, an open market is exhibited when a property owner hires a realtor to list his or her property to those who might be interested in buying. In an open market, the purchase price is considered a fair market value when the purchaser registers the property in a month or two to complete the purchase contract. However, if the purchase takes longer than that to register the transfer, an appraisal needs to be filled to ascertain the purchase price as a fair market value.

3. What is a non-market transfer? Gift transfers or bequests are some property transfers which are regarded as non-market transfers. The tax authority uses either an independent appraisal or BC assessment value that usually reflects the property as the fair market value from July 1 of the prior year. Valuation can also be influenced by acreages for sale, improvements, classification of the land as farmland or change in the current market.

Most people tend to buy property or land to develop without consulting or researching first and hence end up losing or paying a lot of money for the property. Eventually, they end up losing the property due to foreclosure! As a prudent property or land buyer, gather as much information as you need before you engage in buying any property. Also, get help or information from experts, e.g., realtors, lawyers, financial advisers, etc. to avoid making mistakes during or after you buy the property.

Article by - Justin Hennessey