A "kid" wanting to buy land.

[Hockaday2017]

Last year I bought my house and the 20 acres it sits on here in Northwest Colorado. There is another 5 acres for sale that borders me that I would like to pick up in the spring. I am 23 now so thats where the "kid" reference in the title comes from. My question is is there a way to roll that into my current mortgage or should I just do a vacant land loan ( I know that is not the correct name for it) and put 30% down. I am by no means experienced in any of this except for my current place which is my first home. I know I should call a professional and I will. I just wanted to see if anyone had any insight or advice on how to go about doing it or if someone else has done it and has a recommendation.

 

[seeth07]

Yes you can but it does require two closings. You will need to close on your home refinance in which the bank will actually give you cash out based on the new appraisal value of your home and what you currently have left to pay. You then close on the new property with this cash and you would need to potentially make up any remaining balance or supplement it with another loan such as you suggested to begin with.

 

[F250]

Good for you young man !! Sounds like a good investment, and good forward thinking.

 

[BigHornRam]

Check what the loan interest rate of your current mortgage is vs. a what a refinance rate would be today. Interest rates are going up. If you already have the funds for a 30 % down payment on the 5 acres, it's most likely cheaper and easier to get the loan on the 5 acres by itself.

 

[BuckRut]

You don't necessarily have to refinance. If you have enough equity on the home you can get a HELOC on your home and use that to pay for the land.

 

[BigHornRam]

You don't necessarily have to refinance. If you have enough equity on the home you can get a HELOC on your home and use that to pay for the land.

I know real estate has appreciated rapidly lately, but he's only owned the home for 1 year.

 

[TimeOnTarget]

I know real estate has appreciated rapidly lately, but he's only owned the home for 1 year.

So you're saying he probably has 100k in equity?

 

[MarvB]

Might be more true than you think lol, not to derail from the OPs thread but:

The average size of a new mortgage just set a record, as home prices continue to climb

Rising mortgage rates are crushing refinance demand, and higher home prices are causing purchase loan sizes to grow.

www.cnbc.com

 

[BuckRut]

I know real estate has appreciated rapidly lately, but he's only owned the home for 1 year.

So you're saying he probably has 100k in equity?

I don't have a clue how much equity he has but he doesn't need near 100k. We don't know the circumstances that he bought the house under.

 

[BigHornRam]

I don't have a clue how much equity he has but he doesn't need near 100k. We don't know the circumstances that he bought the house under.

No we don't. But I am impressed that a 23 year old has already purchased a house and 20 acres, in Colorado no less, and looking to add more acerage. Good job "kid"! Just don't get in debt so much as to get yourself in trouble, and best wishes going forward!

 

[BigHornRam]

One other thought on having 2 seperate loans. At some point you may want or need to sell one of the properties but still keep the other.

 

[Hockaday2017]

One other thought on having 2 seperate loans. At some point you may want or need to sell one of the properties but still keep the other.

That is true and has also crossed my mind!

 

[Hockaday2017]

No we don't. But I am impressed that a 23 year old has already purchased a house and 20 acres, in Colorado no less, and looking to add more acerage. Good job "kid"! Just don't get in debt so much as to get yourself in trouble, and best wishes going forward!

Thank you! My place is the only debt I have and the payment is less than half of my monthly income and I plan to keep it that way!

 

[MTLabrador]

I am definitely in the wrong line of work. Those catalytic converters are looking better all the time.

 

[GKimPrice]

Have you inquired if the 5 acre owner would carry a contract ?

 

[Steiny]

Thank you! My place is the only debt I have and the payment is less than half of my monthly income and I plan to keep it that way!

Anywhere near half of your monthly take home income is a huge mortgage. Most recommend to keep it near 1/4 of your monthly take home.
I wouldn't go into debt much deeper just to get another five acres.

 

[JoMo]

I am actually doing the same thing with a neighbor here in southern CO. I ended up doing a cash out refi on our current place so I can purchase the neighboring property. Once it’s done, I am going to do a lot line adjustment to combine the parcels. This will end up reducing the overall property taxes as the rates here for vacant land are insane. Food for thought.

 

[MTGomer]

Have you inquired if the 5 acre owner would carry a contract ?

This is a pretty handy way to do things. I bought 20 acres in Montana in 2020 this way. Put 20% down, pay them monthly and throw extra at it so that it will be paid off before the 5 year balloon.

 

[Hockaday2017]

Anywhere near half of your monthly take home income is a huge mortgage. Most recommend to keep it near 1/4 of your monthly take home.
I wouldn't go into debt much deeper just to get another five acres.

Appreciate the thought! Ive always been told that rule by people that were able to purchase places when they were under $150,000 10+ years ago. The cheapest house in my county right now is $350,000. The reality of where I live (and from my friends around the country also agree) is there in no way a young person (or most people period) can actually follow through with the 1/4 rule unless you are NETTING Over $100,000. A one bedroom rental in someone else's house is $1200-$1800 a month alone. A 2 bedroom duplex is $1800+ a month. I don't know anyone taking home $7200 a month to meet the 1/4 rule just to rent a house let alone buy one.

 

[mdhunter]

Appreciate the thought! Ive always been told that rule by people that were able to purchase places when they were under $150,000 10+ years ago. The cheapest house in my county right now is $350,000. The reality of where I live (and from my friends around the country also agree) is there in no way a young person (or most people period) can actually follow through with the 1/4 rule unless you are NETTING Over $100,000. A one bedroom rental in someone else's house is $1200-$1800 a month alone. A 2 bedroom duplex is $1800+ a month. I don't know anyone taking home $7200 a month to meet the 1/4 rule just to rent a house let alone buy one.

I understand your concerns but the 25-30% rule for a mortgage is time tested. You are young but remember big bills are coming with a family etc. It's nice to have some breathing room financially as the current economic times will not last forever. Hopefully as you age your income will continue to increase lessening the payment pressure. Good luck with your purchase!