Illustration: Hunter Newton/Bankrate
Blake Johnson, a construction superintendent in Seattle, wants to buy land and build a house on it. After all, the 24-year-old is a talent who has spent several years working 60 hours a week in commercial and residential renovation projects. However, land loan interest rates in his area range from 10% to 16%, much higher than typical home loan rates. And he still has to pay for the construction.
Setting the stage for home buying
Land loans are less standardized than regular home loans and may come with higher credit score and down payment requirements, higher interest rates, and shorter terms. Loans to purchase land are often made in conjunction with what are called construction loans, or construction-to-permanent loans. That’s when the loan converts to a regular mortgage after the home is built.
According to a study by the National Association of Home Builders, the amount of single-family construction loans will increase to $91.2 billion by the end of 2025, an increase of 0.5% from the previous year and the first increase in two years. Still, the amount of these loans is less than half what it was in 2008.
As with any mortgage, it’s worth comparing construction loan lenders to ensure you’re getting the best interest rate and terms. But the real savings may come after switching to a mortgage.
Behind the scenes of his home buying experience
Johnson, a blue-collar worker, feels prices are high in his housing market. And there is data to support his view. In its Best and Worst Markets for Home Buyers report, Bankrate ranked Seattle the 9th most affordable metro area for home buyers, with just 8.3% of homes being affordable. The data shows that to buy a median-priced home, you need an income of $206,007.
“In Seattle, it feels like a sick joke for people outside of the tech industry to own a home,” Johnson says. Feeling constrained to buy in the city, he decided to look further afield for land to build on, even if it meant at least an hour’s commute.
Ideally, he would buy the land with cash or borrow it from his father to avoid high interest rates. That would require a loan to pay for labor, materials and permits. He believes he can handle the siding, framing, roofing and interior finishes himself and use a network of subcontractors for the rest.
his dream of home ownership
Johnson has wanted to own a home since he was a teenager and admits he is class-conscious. “Some people have it, and some people don’t,” he says. “I would also like to be one of the owners.”
He also says he chose a career path in the construction industry to help people buy and build homes one day.
Johnson dreams of one day owning his own construction business, and owning land would give him space to store his equipment and run his business. But for now, he only has time for a few side hustles in addition to his full-time job. “I’m working more than I wanted to,” he says. “Mainly because I’m betting the (housing) market will go down soon.”