How to Buy Land

Essential Tips for Purchasing Land in Canada

Oil tankers unloading in their cargo in the Port of Montreal. In the fore ground we see the Saint-Lawrence River and in the background we see the Montreal skyline at a distance.

Buying land in Canada can be a strategic move for building homes, starting a business, or investing in real estate. Understanding the process and key considerations will help you make informed decisions and avoid costly mistakes. This guide covers everything you need to know about purchasing land in Ontario, from types of land to financing options and legal requirements.

Types of Land in Canada

Raw Land

Raw land is undeveloped land that lacks utilities like power, water, and sewage systems. It often requires significant investment to make it usable for residential or commercial purposes. Raw land is typically cheaper but comes with higher development costs. It's commonly found in rural or remote areas, making it suitable for those looking to build from scratch or invest in future development opportunities.

Vacant Land

Vacant land is partially developed land that may have some utilities and infrastructure in place. This type of land is more accessible and often has road access, making it easier to develop than raw land. Vacant land can be found in urban and suburban areas and is ideal for those who want to build a home or commercial property with fewer initial development challenges.

Crown Land

Crown land is public land owned by the provincial or federal government. In Ontario, a significant portion of land, especially in the northern regions, is Crown land. Purchasing Crown land involves specific restrictions and conditions set by the government, and it can be used for recreational, agricultural, or commercial purposes. Leasing Crown land is also an option, allowing temporary use without full ownership.

Steps to Buying Land

Research and Planning

Before purchasing land, thorough research and planning are essential. Begin by understanding the zoning laws and land use restrictions in your desired area. These laws dictate how the land can be used, such as residential, commercial, or agricultural purposes. Additionally, consider environmental and natural disaster factors. For example, in areas prone to flooding or wildfires, extra precautions and preparations will be necessary.

Finding the Right Plot of Land

Finding the right plot of land is a critical step in the buying process. Consider factors such as location, accessibility, proximity to utilities, and overall suitability for your intended use. Whether you're looking in Ontario or the serene landscapes of British Columbia, ensure the plot aligns with your goals and future plans.

Land Listings For Sale

Financing Your Purchase

Securing financing for land can differ from obtaining a traditional mortgage. Options include land loans, construction mortgages, or using a home equity line of credit (HELOC). Be prepared for larger down payments and higher interest rates, especially for raw land. Understanding your financial options will help you budget and plan accordingly.

Land Surveys

A land survey is crucial to determine the exact boundaries and features of the property. This survey will reveal any easements, rights-of-way, or encroachments that may affect your land use. It's essential to have a current survey, as older surveys may not accurately reflect the current state of the land.

Soil Testing

Soil testing is necessary to evaluate the suitability of the land for construction, particularly if you plan to install a septic system. A percolation test will assess how well the soil absorbs water, which is vital for septic systems. Understanding the soil composition will help you avoid potential issues during construction.

Making an Offer and Closing the Deal

Once you've completed your research, found the right plot, secured financing, and conducted surveys and tests, it's time to make an offer. Work with a real estate agent to negotiate the terms and ensure all legal requirements are met. After agreeing on a price, proceed with the closing process, which includes signing the purchase agreement, transferring funds, and officially becoming the landowner.

Financing Land Purchases

Land Loans

When purchasing land, securing a land loan is a common financing method. Land loans typically require higher down payments and interest rates compared to traditional mortgages. For raw land, which lacks infrastructure and utilities, lenders may require down payments of 30% to 50%. Vacant land, which may have some utilities and improvements, usually requires a lower down payment.

Down Payments and Interest Rates

The down payment and interest rates for land loans vary depending on the type of land. Raw land, being riskier for lenders due to the lack of development, often demands a higher down payment and carries higher interest rates. Vacant land, with some existing utilities or infrastructure, is considered less risky, resulting in slightly lower down payments and interest rates.

Differences Between Raw and Vacant Land Financing

Financing options differ significantly between raw and vacant land. Raw land is harder to finance due to its undeveloped state, requiring larger down payments and higher interest rates. Vacant land, on the other hand, is easier to finance because it has some level of development, making it less risky for lenders. It generally requires a lower down payment and offers better interest rates.

HELOCs and Personal Loans

Home Equity Lines of Credit (HELOCs) and personal loans are alternative financing options. If you own a home, you can use a HELOC to access the equity in your property to purchase land. This option typically offers lower interest rates compared to land loans. Personal loans can also be used for smaller land purchases, though they often come with higher interest rates and shorter repayment terms.

Seller Financing

Seller financing is an option where the land seller acts as the lender. This method can be advantageous if you have difficulty securing a traditional loan. In seller financing, you make a down payment to the seller and agree to pay the remaining balance through regular installments, similar to a mortgage. Terms are negotiated between you and the seller, which can provide flexibility in interest rates and repayment schedules.

Key Considerations Before Purchase

When buying land, it's essential to evaluate the availability of utilities and infrastructure, including access to power, water, and gas. Ensure there is road access to the property, as raw land may require constructing private roads or driveways, which can be costly. Development costs such as clearing and leveling the land and connecting utilities should be considered, as these activities can incur significant expenses. By addressing these key factors, you can better prepare for the challenges and costs associated with buying and developing land, ensuring a smoother purchasing process.

Risks and Challenges

When buying land, it's essential to consider various risks and challenges. Natural disasters such as flooding, wildfires, and earthquakes can significantly impact the safety and value of your property. Research the region’s history of such events and choose land less susceptible to these risks to ensure safety and manage insurance costs. Environmental protections can impose restrictions on land use and development, especially in designated protected areas or habitats for endangered species, so it’s crucial to consult local environmental authorities.

Conclusion

Buying land in Canada involves understanding different types of land, such as raw, vacant, and Crown land, and navigating through various steps including research, securing financing, and conducting essential surveys and tests. Thorough research and professional consultation are crucial in mitigating risks. By being well-informed and prepared, you can make sound decisions and take confident steps in your land investment. Now is the time to apply this knowledge, explore available plots, and move forward with your land investment goals.