Blog 8

How to Buy Land and What You Need to Know

If your dream home includes plenty of space and privacy, buying land to build on might be the perfect solution. Once you’ve found the ideal plot, securing it becomes the next step. Many experts suggest paying for land in cash if possible. A financial advisor can help you determine which assets to liquidate or how to arrange your financing.

What to Do Before You Purchase Land

Buying land is a significant and often long-term investment. Whether you’re planning to build a house or see potential for future appreciation, thorough preparation is essential. Start by assessing your budget to ensure you have enough room for the associated costs, including:

  • Fees and permits
  • The cost of the land itself
  • Building expenses
  • Adjustments to the land for utilities like water and electricity

Steps to Buy Land

Purchasing land involves several key steps. Whether you aim to live in a specific neighborhood or are investing for future gains, the following steps will guide you:

  1. Finding Land: A real estate agent can assist, but you can also search independently through classified ads, specialty publications, or online platforms like Land and Farm, LandWatch, and Craigslist. Additionally, government sites like realestatesales.gov offer listings of public land for sale.
  2. Choosing the Right Land: Ensure the land suits your needs by checking zoning laws, soil quality, access to utilities, elevation, and any liens or environmental issues. A real estate agent or attorney can help navigate these complexities.
  3. Financing the Land Purchase: While paying in cash is ideal, land loans are available. These can be for raw or improved land, with raw land loans typically harder to obtain and having higher interest rates. Owner financing and USDA’s Section 502 loans are alternative options.
  4. Making an Offer: Prepare a written offer with your terms and be ready to negotiate. Research comparable land prices to support your offer.
  5. Completing a Land Purchase Agreement: Finalize the purchase by signing a land purchase agreement, which outlines the price and terms. This includes reviewing state-specific forms, a closing statement, and a deed transfer.

Finding Land for Sale

Utilize various resources to find land:

  • Real Estate Agents: They can provide local insights and handle negotiations.
  • Classified Ads and Publications: Local newspapers and specialty magazines often list land for sale.
  • Online Platforms: Websites like Land and Farm, LandWatch, and Craigslist offer extensive listings.
  • Government Sales: Check realestatesales.gov for available public land.

Sometimes, unlisted plots may be available if you inquire directly with landowners.

Choosing the Right Land

Consider these factors before purchasing:

  • Zoning Laws: Ensure the land is zoned for your intended use.
  • Soil Quality: Verify the soil is suitable for building and utilities.
  • Accessibility: Check for access to roads, water, electricity, and gas.
  • Environmental and Legal Issues: Confirm there are no liens or environmental problems.

Hiring a professional surveyor can provide valuable insights into the land’s dimensions and accessibility.

Getting a Land Mortgage

Land loans come in two main types:

  1. Raw Land Loans: For undeveloped land, these loans are riskier and often come with higher interest rates.
  2. Improved Land Loans: Easier to obtain, these are for land with some development, such as utilities.

If traditional loans are unavailable, consider owner financing or USDA loans for rural land.

Down Payment Requirements

Land loans typically require a larger down payment, ranging from 20% to 50%, due to the lack of physical assets on the land.

Making an Offer on Land

Submit a written offer with your terms and be prepared to negotiate. You can ask the seller to cover some closing costs and include contingencies, such as passing an inspection.

Completing Your Land Purchase Agreement

Finalize your purchase by signing the agreement, which details the transaction terms. Review all necessary documents, including state forms, a closing statement, and the deed transfer.

Bottom Line

Buying land involves careful research and planning. Consult with specialists and ensure compliance with local regulations to secure the land for your dream home.

Real Estate Tips

Consider consulting a financial advisor before making a significant real estate investment. Square One Planning offers a free tool to match you with up to three vetted financial advisors in your area. Interview your matches at no cost to find the right advisor to help you achieve your financial goals. Additionally, use our free mortgage calculator to estimate your monthly payments, including taxes, fees, and insurance.