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The ins and outs of buying land

Dec. 13, 2021 • 6 min read

What we'll cover

  • Guide on how to buy vacant land

  • Determining how to finance the land

  • Factors to consider when assessing the land

Whether you want to build your dream house from the ground up, hold land as an investment or create your own getaway in the wilderness, owning your own parcel is the first step in realizing your dream.

Let us guide you through the step-by-step process of buying land.

How to prepare to buy land

Shopping for undeveloped land is a lot like looking for a home. Narrow down the general area in which you’d like to buy land, as well as the size of the parcel you need.

Find land for sale

Before you’re ready to purchase a plot of vacant land (often referred to as a lot or parcel), you should determine the type of lot you need and how you will find it.

Depending on how you plan to use the land, you should also consider zoning requirements, which can dictate the size of buildings as well as the types of businesses or residences that can be built. Don’t forget to think about the climate and how possible natural hazards in the area (i.e. fires and floods) could impact the home or business you plan to build. Another important consideration is how you will access utilities such as water, electricity, gas and the internet.

You can start with popular real estate listing sites like Zillow, Trulia, RedFin and Realtor.com, all of which feature listings for vacant land in addition to existing homes. You can also find plots for sale on sites geared specifically toward land listings, including LandWatch, Land And Farm, Land Century and Land.com. More general resources, such as newspaper classified ads and sites like Craigslist, are worth checking out, too.

Just as you may choose to work with a real estate agent in your search for a home for sale, these professionals can also assist you in buying land. Some agents specialize in land sales and have insider knowledge about unlisted parcels of raw land that may be for sale.

Assess the land

You’ll want to consider several factors in determining if a parcel of land is a good fit for your needs.

When you purchase land, you should investigate the CCRs (covenants, conditions and restrictions). CCRs are rules set by a homeowners’ association or local government that dictate what can and cannot be done with the land you buy. CCRs vary in scope and may limit the type and size of property you can build. They can also restrict additions to a home or fencing, for example, as well as limit activities you carry out on the plot, such as running a retail business.

Working with a professional land planner can help you navigate some of these complex issues and ensure that you’re in compliance with local CCRs and zoning regulations. They can also assist in developing the most efficient plan of use for your land purchase.

Determine how to finance the land purchase

Experts often recommended buying land in cash if possible , but you can finance your purchase with a variety of land loans, too.

Obtaining a land loan is more difficult than getting a traditional home mortgage. Because raw land is considered a riskier investment than a home, land loans come with higher interest rates and typically require larger down payments. You may be required to put as much as 50% down, but some lenders only require a 20% down payment.

Land loans are further divided into subtypes:

  • Raw land loan: for completely undeveloped land that doesn’t have access to utilities and may not have road access. It’s usually less expensive than other loans, but it can be difficult to get financing.

  • Unimproved land loan: for plots that likely have access to some utilities but may still lack other amenities like an electric meter, gas meter and phone box.

  • Improved land loan: for the most developed plots with full access to utilities and amenities. These are typically the most expensive.

The type you need and will qualify for depends on the type of land you purchase.

Local banks and credit unions offer land loans, and you should shop around to compare your options. In addition to your credit score, land loan lenders may also want information about what you intend to do with the land and the type of property you plan to build on it.

Beyond banks and credit unions, you may also want to consider the following loan types to finance your purchase:

  • Cash-Out Refinance: Another option is to use a  cash-out refinance  to fund your land purchase, which can be a good choice when you plan to use the land for an investment property .

  • Home Equity Loan: If you currently own a home with significant equity, you should consider a  home equity loan  to finance your land purchase. No down payment is required, and you’re likely to get better terms. Keep in mind that if you default on the loan, you could lose your home, and the mortgage interest you pay is not tax-deductible.

  • USDA Loan: If the land you are purchasing is rural and agricultural, you may qualify for a subsidized loan through the  United States Department of Agriculture (USDA).

  • SBA 504: If you are purchasing land for business purposes, you may qualify for a  Small Business Administration 504 loan , which provides long-term, fixed-rate financing of up to $5 million to buy or construct assets that promote business growth or job creation, including land. These loans are offered exclusively through Certified Development Companies (CDCs).

  • Owner/Seller Financing: The seller of the land you are buying may be willing to work directly with you on negotiating the terms of the purchase. You should have any such agreement reviewed by an attorney to ensure its compliance with all laws and local ordinances.

Make an offer

Come prepared with research and data to back up your proposed price. A real estate agent can submit a written offer on your behalf. If you’re not working with one, you should consult a real estate attorney to draft the necessary documents.

Your offer may include contingencies, which are the conditions that must be met before the sale is finalized. Contingencies for a land purchase often include a specified timeframe — typically between 30 and 90 days — in which due diligence will be completed. Due diligence should include a title search, which verifies that the seller can legally transfer the property to you. You should also request any documents pertaining to CCRs and double-check zoning requirements.

You may also want to consider soil tests and/or other environmental tests to determine if the soil can support a foundation and whether it contains dangerous chemicals, such as lead and arsenic.

Close on your land purchase

After your offer has been accepted, you’re ready to close on the land purchase. It’s typically the buyer’s responsibility to cover closing costs in a land sale, but you may be able to negotiate for the seller to pay all or some of the costs. Expect to pay between 2 to 5% of the purchase price in closing costs.

Buy land to accomplish your personal goals

Buying land is a major undertaking with many variables to consider. Your dream for the plot is yours to design. From building a customized home to opening your own business, purchasing a parcel is the first necessary step in realizing your personal goal.

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