Is a Deed of Sale Enough Before You Can Build a House?
- If you're using a construction loan to build your house, the lender will require several things in addition to the deed of sale on the property. You will need to provide the lender with a complete set of plans and the builder's contractor license number. You'll also need to have an appraisal done by an appraiser who is familiar with building plans. The appraisal will represent the estimated value of the property "after" the house is built. This will determine the actual loan-to-value that the lender will be making on the property. The loan-to-value is the loan in relation to the value of the property shown as a percentage. For example, a loan of $50,000 made against a property with an appraised value of $100,000 will have a loan-to-value of 50 percent.
- A deed of sale isn't the only thing you'll need to build a house. The property must have the proper zoning in order for you to be able to build on it. To verify the zoning on a particular parcel, you should contact a local real estate agent or a title company to ask about the zoning status of the parcel in question. There may also be certain building code restrictions that should be addressed prior to construction. For example, homes in a certain area might be limited to one-story.
- Not all deeds of sale transfer title in the same way. If you received a quitclaim transfer deed from the previous owner, you should do a title search with a local title company to verify that you have clear title as a result of the quitclaim. This is because a quitclaim deed doesn't have any express or implied warranties as to the grantor's ownership interest or ability to convey clear title in the parcel that was granted. Grant deeds and warranty deeds come with an express and implied warranty that the person or entity "granting" the property has the ability to do so. In most sale transactions, a grant deed or warranty deed is used to transfer title. A quitclaim deed is typically used to clear title if there is an ambiguous cloud on title.
- Since the cost of building a home can be enormous, you should verify all pertinent information relating to building on the property before you start construction. If you're unsure about the legalities of building codes, easements or other restrictions on the property, consult with a real estate attorney to verify that everything is in order. If you obtained the property from a private party without going through escrow, verify the vesting on the property and any other title issue that might create a problem in the future.
