Buying Land: Everything You Need to Know

related category image

Point of Interest

Buying land gives you a blank slate to work with. It’s an opportunity to build the home of your dreams and get exactly what you want, but you need to know how to find the perfect plot.

Buying land puts you in control. Instead of renovating or removing any existing buildings on the property, you get to start from scratch and create exactly what you want. But first, you need to find, finance and finalize the purchase of your perfect plot of land. Learning how to buy land is crucial for making sure your new location lives up to expectations.

How to buy land

Step 1: Find the land you want.

Location, location, location. While it’s always possible to change your house, you can’t change where it’s located, making the first step in buying land the most important: Ensuring your potential purchase is both what you want and where you want it.

One option is hiring a real estate agent to search the market and find locations that meet your specific criteria, such as easy access to water and commuter highways or a certain amount of available space for building. You can also do the legwork yourself, especially if you’re not sure exactly what you’re looking for.

For example, GSA Auctions lists excess and repossessed land for sale by the government, while sites such as Land and Farm or LandWatch can help you locate rural properties with specific characteristics. You can also speak to landowners directly and see if they’re willing to sell.

Step 2: Consider potential challenges.

Unlike residential properties with existing homes, parcels of land for sale may have some existing services — such as sewer and water hookups — or be completely undeveloped. The physical characteristics of the land itself may also prove challenging.

For example, property on a steep hill may prove problematic for water drainage and pouring the foundation of your home. It’s also possible that existing soil or water conditions may require remediation before a property can be safely constructed. Your best bet is to hire a professional land surveyor to evaluate the land and ensure there are no hidden issues before you start the financing process.

Step 3: Secure land financing.

Next, you need to secure financing. Just like a mortgage, you can apply directly with a bank or another lender for financing when buying land. If typical financing isn’t an option and you’re buying land in a rural area, consider a Section 502 direct loan from the USDA, which helps low-income buyers purchase and build homes on rural land.

It’s also worth noting you’ll typically need separate financing for any buildings on your land, often called a construction loan. You can also choose to pay cash since unserviced, raw plots of land may be relatively inexpensive.

Step 4: Make an offer and complete the agreement.

Once you’ve secured financing for your land, you need to negotiate the right price. This process is similar to purchasing a home. You make an offer and the seller then accepts or rejects your offer and may come back with a counteroffer. While a real estate agent is not required for this process, you’ll often benefit from their expertise in completing land ownership agreements and ensuring the property deed is transferred to your name.

Tip: If you’re looking for raw land — land with no sewer, water, or electrical infrastructure, pay in cash if possible, since most raw land loans require down payments between 20% and 50%.

Consider this prior to buying land

Before buying land, do your research on local restrictions, zoning laws and access requirements. As noted by Realtor.com, for example, some properties are “landlocked” — they don’t have immediate access to a roadway. In this case, you’ll need an easement, which is a legal agreement allowing you to pass through the neighboring property.

It’s also worth considering key requirements such as setbacks, which refer to how far any structure must be from the edge of your property. If you have a 60-foot-wide lot with 25-foot setbacks on each side, for example, your house can be a maximum of 10 feet wide, which doesn’t afford much room.

Finally, consider local zoning laws. Some areas may not permit the addition of a second story to your home, while others specify the overall size of your home or prevent you from building certain structure types. Better to know what you can — and can’t — do on the land before making a purchase.

Tip: Head to the public records office of the city, town or county where your land is located to check for specific rules or ordinances that apply to your potential property, such as restrictions on adding a second story or architectural controls.

The final word

While the process of buying land is similar to purchasing a house — you’ll need to find the right location, secure financing, and make a great offer. You also need to consider the physical characteristics, zoning laws and total cost to both buy land and build your house.

FAQ

Is buying land a good idea? 

Yes. Even if you don’t immediately build a home or choose to resell the land again, land carries consistent value over time.

Is buying land easier than buying a house?

Yes and no. While potential issues are more obvious with raw land than behind home walls, you’ll need secure financing for both the land itself and the construction of any buildings.

How does land buying work?

First, you need to find land for sale — using a real estate agent, online search sites or through sellers directly. Next, you need to have the land inspected, secure financing, make an offer and complete all necessary paperwork.

How much deposit do you need to buy land?

Your deposit depends on the total price of the land, what you plan to build on it and its current condition. Expect any raw land financing to come with much higher down payment requirements and higher mortgage rates.

Doug Bonderud

Personal Finance Contributor

Doug Bonderud is an award-winning freelance writer with the unique ability to translate complex financial concepts into approachable, actionable content that both captures reader interest and delivers key brand messaging.