Whether your goal is to build a family home, start a farm or use it for recreation, buying land can be tricky. If you’re curious how to buy land, here are the essentials you need to know.

1. Decide how you’ll pay 

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, as well as determine how you’ll pay.

One of the best strategies is to pay cash, because lenders consider vacant land a riskier investment than a house that’s already built, and charge more to finance it as a result.

If you plan to pay in cash, you’ll want to budget for both the land and additional expenses like property taxes and utility installation.

If you’re looking for a loan instead, it’s important to get your finances in good shape ahead of time by paying down debts to lower your debt-to-income ratio, and starting to save for a hefty down payment.

“Lenders typically require 20 to 25 percent down on raw land and farms, though there are some agriculture-oriented credit unions that sometimes only require a 15 percent down payment,” according to Brandon Garrett, president and chief investment officer of BentOak Capital in Weatherford, Texas.

2. Compare your financing 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 financing options might include:

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.

“If you do not have a strong existing banking relationship and are looking to finance a land purchase, a consumer-owned credit cooperative that specializes in rural and agricultural lending is a great place to start,” says Garrett.

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 backed by 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.

Home equity loan

If you already own a home, you could consider tapping your existing home equity with a home equity loan. This approach will likely be much 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. 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.

After you’ve been approved for a land loan, there are several steps in the closing process:

  • Appraisal – A professional appraiser will measure and appraise the property, taking into account the size and location. This typically takes two to four weeks.
  • Property documentation investigation – The lender will order a title search to ensure there aren’t any outstanding liens or judgments on the property.
  • Insurance verification – You’ll be asked to provide proof of all necessary coverage, such as general insurance, liability insurance, hazard insurance or flood insurance.
  • Document preparation – The loan officer will create the loan paperwork showing the terms that have been approved.
  • Fee calculation – The fees that you have to pay at closing can include title fees, a recording fee, property taxes, real estate commission or other costs charged by the lender, title company, appraiser or real estate agent.

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 paying to build a septic system.

“In addition to purchasing and financing, there are added carrying costs on land that people tend to not factor in — especially first-time landowners,” says Garrett.

Also, “even if you have vacant land, there are active management requirements and costs,” says Hank Mulvihill, director and senior wealth advisor at Smith Anglin Financial in Dallas, Texas. “Be aware that land does not just sit there.”

4. Find land for sale

There are several ways to find land for sale:

Online listings

If you have an idea of where you’d like to purchase land, you can start searching online for parcels offered via auction or properties up for sale. A few websites include:

  • LandAndFarm.com
  • LandWatch.com
  • Land.com
  • LandCentury.com

You can also try searching for land for sale on general real estate listing sites, such as Zillow or realtor.com. You can even try browsing listings on Craigslist.

Via a real estate agent

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.

Your local paper

The classifieds section in your local newspaper could advertise listings from land owners selling parcels independently, and you might be able to save money by connecting with the owner directly. There might also be niche publications with listings for land specific to your interests, such as land for hunting, recreation or farming.

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.

Government land listings

Sometimes, the government has land up for grabs, such as repossessed parcels. You can search for what’s available on sites such as:

  • Disposal.gsa.gov
  • Realestatesales.gov

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.

If you haven’t owned land before, it’s a good idea to consult a professional, such as 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.

5. Research the property 

When you find 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. “Getting electricity to a remote parcel can be stunningly expensive,” says Mulvihill. “Sewer service is unlikely in remote areas, so be ready to spend up to $40,000 for a septic system.”
  • 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 retail mall be built near the property someday? Check your local zoning authority’s website or visit town hall in person to learn about regulations in the area, and any construction plans that could impact your parcel. “You really do not want to build your dream home next to a beautiful open area which is zoned to become a gravel quarry,” Mulvihill says.
  • Property taxes – “Property taxes on a piece of land can be costly and make holding the property long-term economically unfeasible, which is why most raw landowners try to ensure that their parcels fall under agricultural exemptions,” says Garrett.

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 survey showing property lines, parcel size and easements
  • 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 real estate agent to prepare the offer for you.  

Bottom line

Buying land can be 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 on building a house on your land, you’ll also need to factor in construction costs. A construction loan can help.

With additional reporting by Jackie Lam

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