For many families, the dream of constructing a custom home is often just that a dream but not anymore! With Home Start’s One-Time Close Construction Loan1 you can now build your dream home and finance it all at once. Combining the construction loan with the permanent home loan means no more two close dates, higher fees for documentation or underwriting, and a second round of qualifying and potentially higher interest rates than you’ve been approved at initially. But the biggest challenge facing borrowers today is the explosion in land values.

It’s no surprise the value of land has continued to climb in various locations throughout the United States, thanks to limited available properties for sale and increasing urban development, population growth, and post-pandemic demand for housing. For borrowers relying on a One-Time Close Construction Loan, these increases in costs can change the whole picture of whether or not house building is possible. In this article, we will examine how rising land costs are impacting borrowers, why the trend is occurring and how prospective homebuyers can move through the shifting marketplace.

Why Land Prices Are Rising

Ahead we’re breaking down what this means for One-Time Close Construction Loan borrowers, but first you need to know why land prices are climbing:

1. High Demand and Low Supply

In most areas the demand for land greatly exceeds supply. Prices are being driven even higher by intense competition in once-affordable suburban and semi- rural areas.

2. Urban Sprawl and Population Growth

Rising cities’ appetites for lands are insatiable and global population growth ensures the need for more housing will not stop. Hence, they are growing less abundant and more expensive.

3. Infrastructure Development

When new highways, schools or businesses come into an area, land prices increase rapidly. These so-called improvements make a place nicer and less affordable.

4. Inflation and Construction Costs

Inflation pushes up material, labor and land costs. In most cases, construction companies and developers raise the bidding for plots available in auctions, thereby pushing up general price levels.

The Connection Between Land Prices and One-Time Close Construction Loans

One-Time Close Construction Loan the One-Time Close construction loan covers the cost of building a home as well as the price of land. Soaring land prices in turn affect the total loan size, and thus borrower access to credit and affordable credit. Here’s how:

1. Higher Loan Amounts

As land prices increase, borrowers have to finance more of the money up front. While One-Time Close Loans reduce the amount of red tape you have to contend with by combining construction and mortgage financing, the larger size of the loan might stretch your family’s budget beyond its capacity or exceed the limits for that kind of loan at your lending financial institution.

2. Stricter Qualification Standards

Lenders generally look at income, debt-to-income ratios and credit scores when deciding whether to approve a loan. The more expensive the land, the larger the overall loan, potentially excluding from mortgages some borrowers who no longer pass relatively stringent affordability thresholds.

3. Reduced Flexibility in Home Design

If the price of land chews up a good chunk of the budget, it may leave less for construction features, finishes or upgrades. Increasing land values can mandate families to downsize no matter how much they dream of the size, style, or amenities of a home.

4. Higher Monthly Payments

As loan values increase, so do the monthly payments. And with competitive interest rates, add the pinch of costly land to get husbands and wives potentially locked in at a higher long-run financial commitment.

5. Risk of Appraisal Gaps

Appraisals help determine the fair market value of the land and home project. In rapidly appreciating markets, the values reported by appraisers may not match reality on the ground leading to shortfalls that borrowers need to cover out of pocket.

Regional Differences in Land Prices

But the price of land is not rising uniformly in all markets. If you are a borrower who wants to use a One-Time Close Construction Loan, it’s important to understand the local real estate climate as follows:

• Texas and the South: Job markets, population inflows and demand for affordable housing are driving up land values, especially around cities like Austin, Dallas and Houston. Those who are looking for VA Construction Loan Texas options will find that it may not come easy as rural land shoots up in value.
• California: Prices have always been high in a state short on land and with strict zoning. Recent spikes in demand, and wildfires that have reduced the amount of available buildable land, have only further driven up costs.
• Midwest and Plains States: Although land is relatively inexpensive overall, property just outside major cities is experiencing slow appreciation as suburban sprawl leads demand.
• Florida: As a favorite place for retirees and relocators, the land price is continuously increasing in Florida, especially near coastal areas.

For borrowers deciding where to buy and build, knowing these regional variations is crucial.

The Borrower’s Dilemma: Build Now or Wait?

For many borrowers, the hardest choice is whether to purchase land now or wait for prices to even out. Waiting might make sense if prices cool, but in most U.S. regions land values have trended up over the long term. Delaying could mean an even more costly price to pay down the line, particularly if interest rates increase further, making homes less affordable.

However, diving head first into a hot market with no strategy can stretch the wallet too thin. Many borrowers spend a good deal of time pondering the risks and making informed decisions, consulting with lenders, builders and financial advisers before signing on the dotted line.

Strategies for Borrowers Facing Rising Land Prices

Fortunately, there are methods to overcome the challenge of high cost of land when One-Time Close Construction Loan is used. Here are some practical strategies:

1. Expand Location Searches

Peek just beyond the high-demand urban or suburban areas and you’re likely to find more affordable parcels. Commuter-friendly towns are often good value.

2. Work with VA or FHA Loan Options

Veterans can take advantage of a VA One-Time Close Construction loan that allows 100 percent financing and no down payment. HFB stands for Home Fit Builder and, like the FHA One-Time Close Construction Loan; we offer more affordable down payments.

3. Partner with Experienced Builders

Builders who are knowledgeable about loans and local markets can help locate land and give accurate cost estimates.

4. Budget for Rising Prices

Borrowers need to have a cushion in their budget for unanticipated rises in the cost of land or construction.

5. Negotiate and Compare Land Deals

Collaborating with real estate agents who are experienced in land sales can enable borrowers to negotiate better prices and prevent them from overpaying in hot markets.

6. Leverage Equity or Grants

Some borrowers also take out equity from other properties or consider state and federal programs that provide land or homeownership assistance.

The Role of Lenders in a High Land Price Market

And these lenders who provide One-Time Close Construction Loans are more than just your financing partners; they’re also a valuable tool to ensure you bring a project to successful completion. Reputable lenders provide:

• Up-to-Date Market Knowledge: Advising clients on regional land price trends.
• Flexible Loan Structures: Offering different terms, rates, or down payment options.
• Builder and Realtor Connections: Helping borrowers partner with trusted professionals.
• Financial Counseling: Ensuring clients understand how rising land costs impact long-term affordability.

For example, they navigate borrowers through various scenarios so it’s easier to figure out the best route to take, such as how to refinance while keeping as much money in your bank account as possible for other home upgrade projects. The significance of understanding what veterans and first-time builders are going through is that they’re able to take the proper steps so clients don’t just get caught up in the price of land and lose track of their dream home.

Long-Term Outlook for Land Prices

Though short-term swings are possible, most analysts feel that land prices will continue their upward movement in the long term. Given population growth, limited supply and continuing demand for housing, prices that today seem stratospherically high could be tomorrow’s bargains. And for borrowers, the lesson may be that obtaining that land sooner rather than later is probably the better investment, if they are smart about it and budget carefully.

Conclusion

Increasing land values are changing how potential borrowers use a One-Time Close Construction Loan. Although mortgages are still one of the simplest and cheapest ways to build a home, rising land costs now create new concerns for those in this situation. They will have to deal with higher loan balances, more strict requirements and possible compromises in home aesthetics.

But with some strategic location choices, careful planning and help from seasoned lenders, a family can still attain the American dream of homeownership. It’s about being informed, budgeting responsibly and proceeding carefully and yet assertively. Land prices are on the rise, but they don’t have to be dealbreakers.