How to Buy Land for Building a House (A Step-by-Step Guide)

Buying land for a house-build mission can be a tricky affair for first-timers who may not be familiar with what it takes to complete a successful land transaction.

Here’s what to look for when buying land to build a house – packed in a 6-step checklist – to simplify the process and eradicate undesirable outcomes.

Editor’s Note: Unlike most ‘buying land how-to guides’, this article offers a step-by-step outline of all the essential stages of the land acquisition transaction.

Buying Land: How to & Steps to Follow

1. Find suitable land for sale

This is the first step to buying land for house build mission. There are many ways to discover land for sale, including online listings, government land listings, real estate agents, and newspaper classifieds.

For those in the United States, some of the websites to consider include Land.com, LandWatch.com, LandCentury.com, and LandFlip.com.

You may also consider general listing websites such as Realtor.com, Zillow.com, and Craigslist.com. However, you must be careful when browsing free listings to avoid falling into the snares of conmen.

Disposal.gsa.gov, and Realestatesales.gov are great discovery sites for those seeking to buy land from the government – often through an auction bidding process.

2. Investigate the property

Once you have identified a piece of land that matches your criteria, it is important to research the suitability of the property before making an offer.

Some of the key areas to investigate include:

Accessibility – Is the plot accessible from a public road? If not, what will it take – in terms of costs and local authority consent – to build an access road?

Utilities – Are there connections for electricity, water, and sewer on the plot? If not, you will need to install them, which can be quite expensive in remote areas.

Zoning restrictions – Understanding zoning and land-use restrictions ranks highly on the list of what to look for when buying land to build a house.

It is important to confirm that the land on sale has been zoned for residential buildings. You should also check with the local authorities to confirm there are no restrictions that may prevent you from pursuing your custom home building plan.

Property taxes – You should find out whether there are any unpaid taxes on the land as well as the rates that you will be paying annually for holding the property.

You may want to engage a land planner to evaluate the slope of the plot, the type of soil, water table level, existing vegetation, and other issues that may dictate the type of buildings that can be established on the property.

3. Evaluate every expense

Land ownership often comes with many hidden costs such as permit fees, electricity connection, and payments for fixing a septic system, among other outlays.

These costs must be factored in the price tag of the property – in addition to purchasing and financing costs – to avoid running out of cash along the way.

4. Examine your finances

Buying land for a house-build venture is a costly affair that requires you to evaluate your financial health to ensure you can afford the property.

If you are like most people, chances are that you will go the financing route. You need to understand that land loans go for higher rates compared to conventional mortgages due to the high risk of financing undeveloped land.

Banks often require a down payment of 20% to 25% on vacant land, although some credit unions typically require a 15% down payment. 

Your financing options might include:

a.) New construction loan

This covers the cost of buying land as well as the cost of building your house. The loan is converted to a permanent mortgage once the house is completed.

Unlike land loans that often require a high down payment, a new construction loan is typically offered at a down payment of 10% to 20% – with some lenders asking for a lower down payment for those willing to pay a higher interest rate.

To qualify for this financing option, you need to have excellent credit, a low debt-to-income ratio, as well as detailed architectural plans for your project.

b.) Lot land loan

A lot land loan is meant to finance land that is ready for residential development.

It is available for those who fail to qualify for a new construction loan and those who do not have a fixed construction timeline.

To qualify for a lot land loan, the property needs to have appropriate zoning, access to a public road, connection to utilities, and a building permit (if required by the bank).

Lot land loans are typically offered at a down payment of 10% to 20%.

c.) Raw land loan

These loans are available for parcels of land that do not qualify for lot land loans. They come with high interest rates as lenders consider them risky.

Banks usually demand a down payment of up to 50%.

d.) Seller financing

Seller financing is a type of property finance contract that allows the buyer to pay the seller in instalments rather than using a bank loan.

Empty land is often offered with a seller financing option, especially if the seller is seeking a quick sale. This option is useful for buyers who are unable to access land purchase loans with a traditional lender.

When entering into a seller financing deal, you should engage an attorney to negotiate the terms of the agreement, including the down payment, interest rate, and instalments payment terms.

6. Make your offer

After completing all the necessary due diligence, it is now time to present the seller with an offer. This is a written document outlining all the specifics of the land, your contact details, the offer price, and other terms.

Your attorney can assist you in including contingencies in your offer to shield yourself from unforeseen factors that may lead to the collapse of the deal.

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