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How to buy land: 3 steps to purchase a vacant lot

What we'll cover

  • How to prepare for your land purchase

  • Determining how to finance the land

  • Factors to consider when assessing the land

Whether you want to build your dream house or hold land as an investment, owning your own parcel is the first step. Let us guide you through the process of buying land.

1. How to prepare to buy land

Shopping for undeveloped land is a lot like looking for a home. Narrow down the area in which you'd like to buy land and 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:

  • Type of lot (rural, paved or residential)

  • How you'll find listings

  • Zoning requirements

  • Climate and natural hazards

  • Access to utilities (water, electricity, gas and internet)

You can start with real estate sites that feature listings for vacant land (such as Zillow , Trulia , RedFin and ). Or try finding plots for sale on sites geared specifically toward land listings, for instance, LandWatch , Land And Farm , Land Century and .

Assess the land

When you purchase land, you should investigate the covenants, conditions and restrictions (the CCRs). These rules, set by a homeowners' association or local government, vary in scope and may limit the type and size of property you can build.

Working with a professional land planner can help you ensure that you're in compliance with CCRs and zoning regulations.

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.

Because raw land is considered a riskier investment than a home, land loans are more difficult to get than mortgages, 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 without access to utilities and may not have road access

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

  • Improved land loan: For plots with full access to utilities and amenities

If you need a loan, local banks and credit unions generally offer land loans, and you should shop around to compare your options. In addition to your credit score, land loan lenders may also ask for your intended land use and the type of property you plan to build.

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

Beyond banks and credit unions, you may also want to consider these financing options:

  • A cash-out refinance , through Ally Home, for instance, is an option if you plan to maintain your current home and use the land as a primary residence, second home or investment property.

  • With a home equity loan , no down payment is required, and you're likely to get better terms.

  • 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).

  • If you are purchasing land for business purposes, you may qualify for a  Small Business Administration 504 loan .

  • The seller of the land you are buying may be willing to work directly with you on negotiating the terms of the purchase. Be sure to have your agreement reviewed by an attorney.

2. Make an offer

Come prepared with research and data to back up your proposed price. If you're not working with a real estate agent, you should consult a real estate attorney to draft the necessary documents.

Your offer may include contingencies, which must be met before the sale is finalized. These often include a timeframe in which due diligence will be completed. Due diligence should include a title search, which verifies that the seller can legally transfer the property. 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.

3. Close on your land purchase

After your offer has been accepted, you're ready to close. 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.

Part and parcel of your dream

From building a customized home to opening your own business, purchasing land is the first necessary step in realizing your personal goal.

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