The Ins and Outs of Buying Land and Building a Home on It

If you’ve always dreamed of buying a piece of land and building a home on it, you’re not alone. In 2018, there were more than 852,000 home building permits issued in the United States, an increase of 33,000 from 2017.

While not all of those homes were private builds or constructed on land separately purchased by the buyer, it’s safe to say that buying land and building a house on it has become more popular than ever. Concerns about public health issues, such as COVID-19, also have people leaving bigger cities and congested areas, seeking more open spaces and land to build on.

Buying land and building is more feasible than you might think, with plenty of options for where to find land, how to buy it, and how to build a house on it. We’ve chatted with real estate professionals as well as people who’ve undertaken the task of building their own custom homes, all to provide you with the most concise and current information on what it takes to buy property and build a house.

Look around to find a piece of land when you want to buy property and build a home
Source: (Ákos Szabó / Pexels)

Where to find land

When it comes to purchasing land, one of the first questions you might have is where to start looking for property. Depending on where you live, you might find online sites where sellers post raw land for sale, or you can purchase land from a builder who has already subdivided the area.

There are also real estate professionals who specialize in helping buyers find land and build on it, and utilizing their expertise can go a long way toward mitigating any potential issues with the property.

Real estate agent Sandi Van Camp, a 19-year veteran of the industry, has worked with multiple buyers to help them purchase land and build on it. “I work with people who want to buy property and build, as well as builders who are in development,” she says.

Van Camp notes that while buyers often go through builders when purchasing their property, some buy the land outright or even seek out specific areas and talk to owners about selling. “People often do drive-bys of areas they like,” she says, “and we do occasionally go to farmers or others who own a large amount of acreage and ask them if they’d be interested in subdividing and selling.

“If you’re looking for land, drive around and see what areas you like. Find an area you really want to be in, think about how much land you want, and whether you want to be in a specific county or school district,” she suggests.

Zoning and other requirements

Once you’ve found that perfect piece of land, there are multiple things to consider before you buy. “If you’re buying on your own, you’ll want to have the soil tested before you commit,” says Van Camp.

“You don’t want to buy a piece of land and start building, only to hit water when you start digging the foundation.”

Van Camp also recommends that buyers review codes and zoning laws in the area where they plan to buy. “Some townships don’t allow mobile homes or have specific square footage requirements,” she says, “and most towns will require that you go through their planning and zoning department for approval to build. If the property has to be subdivided, that will also require going through city planning.”

Van Camp adds that buyers should keep in mind that any property they buy will most likely need a septic system and a well, both of which can be expensive. Buyers should also be aware of any easements, as well as things like ponds or creeks on the property.

“If there is a stream on the property, you need to consider whether or not there are any land rules or setbacks in regards to where the house can be built in relation to the water,” she says. “You might also be required to install culverts or otherwise divert the water.”

Financing options and costs

For raw land purchases, buyers often pay cash for the property, although there are some ways to get financing via a consumer or unsecured loan. However, those kinds of loans do tend to have high interest rates, so it might make more sense financially to just pay for the land outright.

“More often than not, people buy the land in cash,” says Van Camp. “If you are planning to hire a contractor to build on the land, they won’t build until you have title and ownership, so it makes sense to pay for the land in full if you’re buying it on your own.”

Some buyers purchase land through a builder; in these cases, the property is already subdivided and ready to go. This provides the option of more traditional financing, as well as not having to worry about testing soil yourself and avoiding issues such as adding well and septic systems or navigating zoning problems.

Costs for both the property and constructing the home can vary widely, based on location, acreage, and what kind of house you plan to build. “I would say for the absolute bare-minimum home, you’re looking at about $140 per square foot, with standard setbacks and septic,” says Van Camp. “I’ve seen higher-end homes go upwards of $550 per square foot.”

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Building the house

Alaska resident Hayley Ragsdale said when she and her husband were looking to purchase a new home, they knew right away that they were going to buy land and build. “We looked around and weren’t able to find anything on the market that we wanted,” she says. “It was very important to us that we have a home that was unique and unlike anyone else’s, so we decided that buying property and building would be our best option.”

Ragsdale is no newcomer to real estate, having bought and sold multiple homes in the past, but this was her first experience with a custom build. “We chose our builder based on the quality of some of his other work that we’d seen,” she explains. “He also had lots for sale that were in the location we wanted.”

The lots had already been subdivided by the builder into 2.5-acre packages, so they didn’t have to worry about zoning issues or codes for building. As far as the design of the home, Ragsdale said they opted to customize a plan they found online, working with an architect as well as the builder. “We wanted a 100% custom home and worked closely with the builder to make sure the design was right for us,” she says.

The couple put down a deposit with the builder, who carried the construction loan while the home was being built. Upon completion, the Ragsdales obtained a traditional mortgage loan to purchase the house.

“We obtained a jumbo loan and went through the standard mortgage process,” she says, “but there are many ways to do it. You can pay for the build as you go if that’s an option, finance it all through the bank, or go through the builder and then through the bank, like we did.”

Potential pitfalls

Like any other real estate transaction, Ragsdale says that buying land and building your home can involve its share of issues.

“I would recommend that anyone looking to buy land and build should review in detail what your builder’s plan includes. Most of the time, the finishes and extras are going to be pretty basic, and there will be an additional cost if you want something different,” she says.

“Be crystal-clear on contract details before choosing a builder, and make sure you’re on the same page. It is your responsibility to understand the contract, so if you don’t, find a lawyer or other experienced professional to help you.”

Ragsdale adds that patience is the other key component to having a successful build on land you own.

“We made the choice to not get stressed about when the home would be completed,” she says.

“Expect delays, because they will happen. This is a process, and it does take time.”

Once you find the land where your home will sit and the builder you want to use, Ragsdale also suggests that shopping around for a lender can be beneficial.

“Shop around for the best lender. You have choices, and different lenders have different options and different fees,” she says. “We saved quite a bit by looking into a few different lenders, just in closing fees alone. There is a wide range of mortgage brokers to choose from, so don’t be afraid to find the best one for your situation.”

Ultimately, when you buy land and build, you’ll want to find people you can trust to walk you through the process. Says Van Camp, “You want an agent that understands exactly what is involved, and a good builder who will be there after closing to help with any questions or problems.

“You don’t want to go into a situation blindly and end up with a ton of additional expenses that you didn’t anticipate. Paying those commission fees to a knowledgeable agent will actually save you money in the long run.”

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