How to buy land: A step-by-step guide

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Buying vacant land follows a similar process as buying a home, but there are key differences. The finances work a little differently, for example, and finding a vacant lot suitable for your purposes can be trickier than finding a home that meets your needs. Whether your goal is to build a family home, start a farm or use it for recreation, here are six essential steps to follow when you’re thinking about buying land.

1. Analyze your finances

Before you begin your search for undeveloped land for sale, give your finances a hard look to make sure you’re able to afford it. Lenders consider vacant land a riskier investment than a house that’s already built, and they charge more to finance it as a result.

For this reason, paying cash if you can is a good strategy. If you are able to pay for the purchase entirely upfront, be sure to budget not just for the land itself but also for additional expenses like property taxes and utility installation.

If you’re looking to finance the purchase with a loan instead, it’s important to get your finances in good shape well ahead of time. Pay down debts to lower your debt-to-income ratio, and start saving enough to cover a potentially hefty down payment — lenders typically require 20 to 25 percent down for raw land.

2. Compare your loan options

If you’re going the financing route, know that buying land can be a complex process. Land loans aren’t the same as conventional mortgages, and their higher costs tend to reflect the amount of risk assumed by the financial institution dealing with an undeveloped property.

Your loan options and terms might differ depending on what type of land you’re looking to buy. There are three main categories:

• Raw land is entirely untouched, lacking roads, power or sewage systems. Because of the inherent risks associated with such properties, raw-land loans often require a significant down payment and carry higher interest rates.
• Unimproved land might have some basic amenities but is missing crucial utilities like electric and gas meters. They’re not as risky to lenders as raw land, but they may still demand larger down payments and have higher interest rates.
• Improved land is already partially developed, with access to roads, electricity and water. Loans for this type of land might have more favorable interest rates and lower minimum down payment requirements in comparison to raw or unimproved land.

Your financing options for buying land might include the following:

• Bank or credit union land loan: A local bank or credit union is more likely to be familiar with the land in the area, and could offer a loan with better terms. You might also try seeking out a consumer-owned credit cooperative, some of which specialize in rural or agricultural lending.
• USDA loan: If the land is in an eligible rural area and you plan to build your primary residence on it, you might qualify for a USDA loan from the U.S. Department of Agriculture. These loans typically have affordable interest rates and down payment requirements. Options include Section 523 loans for those who plan to build the home themselves and Section 524 loans for those who will hire a contractor.
• SBA 504 loan: The Small Business Administration (SBA) partners with financial institutions to provide financing for business owners who purchase land for business use in the form of an SBA 504 loan. You could qualify for this kind of loan with a 10 percent down payment (among other criteria).
• Home equity loan: If you already own a home, you could consider tapping your existing home equity with a home equity loan. This approach might be less expensive than a land loan — but proceed carefully when using your house as collateral.
• Seller financing: If the owner of the land is eager to complete the sale, you might be able to negotiate seller financing. With this option it’s best to hire an attorney to assist with negotiating the terms of the deal, including the down payment, interest rate and repayment terms.

3. Consider every expense

Depending on how you plan to use the property, owning land can come with many hidden costs, such as permit fees or the expense of building a septic system. There are also the usual costs for maintenance and upkeep.

Don’t forget closing costs. If you’re financing your land purchase with a loan, the fees you’ll pay at closing can include title fees, appraisal and recording fees, property taxes, securing insurance coverage and more.

4. Find land for sale

Be sure you have a solid idea of how you intend to use the land before you start looking. Think about things like plot size, proximity to neighbors, views, distance to town and internet or cell service. And if you haven’t owned land before, consult with a real estate agent who specializes in land sales or a land planner whose job is to evaluate whether it’s feasible to build or develop a piece of land. A land planner evaluates the slope of the land, the water table, type of soil and vegetation and other factors to determine what structures the land can sustain.

Depending on where you live, there could be a real estate agent (or several) in the area who specialize in land sales, or at least have an ear to the ground about unlisted plots of vacant land. Look particularly for agents acknowledged as Accredited Land Consultants (ALCs): Their specialized skills and knowledge enable them to identify and compare vacant land plots that cater to a buyer’s specific needs. By understanding the property type, location and zoning regulations, ACL agents can guide buyers toward the perfect piece of land for their desired use.

There are several ways to find land for sale:

Search online

Search online for parcels offered via auction or properties up for sale. A few websites to try include:

• LandAndFarm.com
• LandWatch.com
• Land.com
• LandCentury.com
• LandBrokerMLS.com
• LandHub.com

You can also try searching for land for sale on general real estate listing sites, such as Zillow or Realtor.com.

Browse your local paper

The classifieds section in your local newspaper could advertise listings from landowners selling parcels independently, and you might be able to save money by connecting with the owner directly.

Take a drive

Another way to find land for sale is to simply drive around your desired area and look for for-sale signs, or drive over to a local real estate office to check the listings in the window. You might be able to uncover land that isn’t listed online this way.

Seek out government land listings

Sometimes the government offers land up for grabs, such as repossessed parcels. Try searching for what’s available on Disposal.gsa.gov or RealEstateSales.gov, both official websites of the U.S. General Services Administration.

Land sold by the government usually gets offloaded through an auction, so if this is your strategy, be prepared to go through the auction bidding process.

5. Research the property

When you find the right plot of land to purchase, do your homework before making an offer. Here are some key issues to investigate:

• Utilities: Are there hook-ups for water, sewer and electricity on the property? If not, you’ll need to install them, which can be expensive.
• Road access: Is there access to the property from a public road? If not, you may need to get an easement to build a road.
• Zoning and land-use restrictions: Is your idyllic country property actually zoned for industrial, agricultural or retail use instead of residential? Will a county road or shopping center be built near the property someday? Check your local zoning authority’s website or visit the town hall in person to learn about regulations in the area, and any construction plans that could impact your parcel.
• Property taxes: Look into the rate of property taxes on the parcel and make sure they’re not so high as to make the purchase economically unfeasible.
• Property survey: Be sure you know exactly where the property boundaries are, so that you know where you can build and where you can’t, or the precise perimeter for fencing. A property survey will also alert you if a neighbor has encroached on the property.

6. Make your offer

Once you’ve done your homework on the property and know how you plan to finance the purchase, you’re ready to present the owner with an offer. This written document contains the details of the property, your contact information, the price you’re willing to pay and other terms.

You’ll also want to include contingencies in your offer to protect yourself from factors that might make you want to walk away from the deal. Common contingencies with land purchases include environmental tests, septic system permits, land surveys and zoning regulations.

There are templates available online of sample purchase agreements, but unless you’re an experienced buyer, you’ll want to get a real estate lawyer or licensed agent to prepare the offer for you.

Bottom line

Buying land can be trickier and more costly than buying a home, and there are different requirements for getting a land loan compared to a home purchase mortgage. If you intend to build a house on your land, you’ll also need to factor in construction costs. A construction loan can help.