Buying Land to Build a House: Your Step-by-Step Guide

Clever Real Estate

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Clever Real Estate

July 22nd, 2021
Updated July 22nd, 2021

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If you're tired of scouring Zillow for your dream home, you may be considering buying land to build a house.

Buying land and building a home gives you much more flexibility and freedom than purchasing an existing property. But, the process is a LOT more complicated, so it's important to start working with an experienced real estate agent as early as possible.

Ready to get started? Clever can help you find a top-rated local agent who specializes in land purchases. Our service is free, and, if you qualify, you could get a cash-back refund when you close on your new property!

» MORE: Find top local realtors and save with Clever Cash Back

1. Find available land for sale

The first step to building your dream home is finding and purchasing the perfect lot to build on.

Most home buying websites let you search for building lots, but you should also check out listing services that specialize in vacant land. Some of our top picks include:

It’s also a good idea to work with a local real estate agent, who can send you automatic alerts as soon as the right property hits the multiple listing service (MLS).

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2. Finance your land purchase

When you buy land to build a house, the financing process is different from buying a traditional home — especially if the land is completely undeveloped and lacking any utilities.

Here are some of your financing options:

New construction loan

A new construction loan allows you to finance both your land purchase and the cost of building your home. These loans often convert to permanent mortgages once the construction is complete.

The main benefit to a construction loan is that your lender will likely require a smaller down payment than if you were financing the lot and construction separately. Lenders generally require 10-20% down on construction loans. Some banks and credit unions offer even lower minimum down payments if you're willing to pay a higher interest rate.

However, lenders typically have strict requirements for new construction loans. To qualify, you'll need excellent credit, a low debt-to-income (DTI) ratio, and detailed architectural plans.

Lot land loan

If you don't qualify for a construction loan or don't have a firm building timeline, you may have to finance your land purchase and construction separately. Lot land loans allow you to finance land that is already prepared for residential development.

In general, a building lot qualifies for a lot land loan if it has the following in place:

  • Appropriate zoning
  • Building permit (if required by lender)
  • Access to a public road
  • Utilities nearby (including sewer access or on-site septic system)

Down payments for lot land loans are usually similar to new construction loans, so you can expect to put 10-20% down.

Raw land loan

If your desired building lot doesn't qualify for a lot land loan, you may need to pursue a raw land loan.

Raw land loans can be extremely challenging to obtain, as lenders consider them risky.

When underwriting raw land loans, lenders often require down payments as large as 50%, and they usually charge higher interest rates compared to other loans.

Seller financing

Vacant land is often offered with the option of seller financing. Owner financing is arranged between the seller and the buyer directly. This can be useful for buyers who find it challenging to finance their land purchase with a traditional lender.

3. Understand zoning restrictions before you buy land to build a house

When purchasing an existing home, you can be reasonably confident that it was already zoned for a residential building. This isn't necessarily true when buying land to build a house, so it's essential to find out what you can actually do with the property before you go under contract.

Purchasing a plot of land that has zoning restrictions can quickly kill any custom home building plans you have. Research the land and conduct your due diligence, such as going to the county planning office and asking them directly if there are any building restrictions.

If you aren't sure of what questions to ask, reach out to an experienced real estate agent who is knowledgeable about vacant land. They will be able to guide you through the process and help you to find out any information that may negatively impact the land's possible usage and value.

4. Determine whether your land is suitable for building

One of the most crucial steps in purchasing a plot of land is to have the area surveyed by a professional. The surveyor will tell you the dimensions of the land, whether anyone else has a right to use the property, and, if you decide to build on it, how accessible the land is.

Other factors to consider are whether the land's soil prevents the safe building of a home or digging of a well. Sometimes environmental problems crop up that make building an impossibility.

You should also consider whether the land is classed as wetlands because the regulations on this type of property can be severe. Laws differ between the city, county, state, and federal level. It is crucial that you try to find local wetland inventory maps, as these can help you locate problem areas.

5. Evaluate the cost of adding utilities

Utilities such as water, electricity, and natural gas are a necessity for residential properties and usually managed by the county. If you would prefer a more rural setting for your land build, you will have to find out whether there are existing utilities in place.

When there are no utilities, calculate the additional expense of installing a well and septic system, as well as running electrical lines.

If you're not sure the extent of the work that may need doing, consult an experienced real estate professional who can help you to find local contractors and source quotes. Depending on the quotes you receive, you may find it necessary to alter your purchasing budget.

Get quotes from local home builders

Designing your custom built home is probably the most enjoyable part of the process. To ensure that you find a builder who really understands your wants and needs, you must be clear about your expectations and timeline.

Aim to speak to several different contractors and ask them for in-depth quotes. It takes an average of over six months for a custom home build to be completed, so you will have to make sure that you and your contractor both have realistic expectations on the cost of the project and your anticipated move-in date.

The joy of a custom home is that you can design it to meet your needs, and while this is wonderful for you, it may not be ideal if you ever have to sell your home. Speaking to a local real estate agent can help you decide what features will improve resale value in your area, as well as what to expect when you sell your home.

Consulting a local property expert can also help you avoid pitfalls such as an “overbuilt” house that you will have trouble recouping your investment from at a later date.

» MORE: Connect with an agent with experience in custom-built homes

Timeline for building a home

To give you a clearer picture on what to expect when building your dream home, here is a general timeline of how your home will come together.

📅 Before you build

Before a shovel even touches the ground, thoroughly prepare a building plan. This is also the point where your vision comes to terms with your budget. In this stage, you'll work with architects, designers, contractors, tradesmen, a real estate agent, lenders, engineers, and inspectors to create the home you've always envisioned but that you can also afford.

Once you move ahead with the build, know that it will be more difficult, costly, and time-consuming to change your mind about designs, materials, and floorplans. Also, be certain about your wants and needs ahead of time so there's clear communication with everyone on the same page.

🏗️ Week 1: Site excavation and leveling

Once you've received financing through a lender, scouted and purchased a plot of land with your real estate agent, planned the home, and received permits, you're ready to begin building your dream home.

During the first week of construction, a crew will come in to prepare the lot for your foundation. This includes leveling the ground, removing any large boulders, creating erosion barriers, and excavating a space if your home design has a basement or crawl space.

This phase also includes placing the footers, or the concrete bases that will support the foundation of your home.

🧱 Weeks 2 to 3: Foundation work

Once your footers are in place and have passed inspection, the foundation work can begin. The workers will pour the concrete slab for your foundation that will provide the sturdy base to build your home on.

🚪 Weeks 4 to 6: Framing

As workers move into the framing stage, you'll start to see your home take shape. Framing is like building the skeleton of your home — you'll see the floor plan, different levels, and cut-outs for doors and windows develop.

Exterior walls and your roof will also be completed at this point, along with sheathing that will protect your home from the elements as construction continues. Plus, you should expect another visit from the inspector to make sure the framing passes code.

🛠️ Weeks 7 to 8: Mechanicals

While this step may not be as dramatic as putting up the walls and roof of your home, installing the mechanicals will allow you to go to the bathroom inside rather than in an outhouse in your yard. The mechanicals include plumbing, electrical systems, your heating and cooling units, as well as wiring your home for a security system if you choose to have one.

Once the mechanicals are installed you'll have running water, working outlets, and enough wiring for light fixtures and appliances. Because insulation typically covers up wiring, an inspector will generally give the go ahead on your electrical systems before adding insulation.

🧰 Weeks 9 to 10: Insulation and drywall

Next comes the insulation and drywall. First, your contractor will install the insulation to help maintain a comfortable temperature and provide a bit of soundproofing.

Then the drywall will go up in the interior, be sanded and primed, and possibly even get a first coat of paint. By the end of this step, your house is beginning to look like a home.

👷 Weeks 11 to 12: Flooring and painting

At this point in the construction process, your design and vision will begin to manifest. The floors and cabinets you carefully and specially picked will be installed along with any built-in shelves and interior doors. Plus, all your walls will be given a coat of paint.

During this time the crew will also get to work on finishing up the exterior walls such as adding brick, stucco, or siding. You'll also see work being done on your driveway, walkways, and landscaping.

🛁 Week 13: Adding appliances and fixtures

The countdown to your home's completion has begun. You'll see a lot of activity throughout the week as plumbers, electricians, and subcontractors install your sinks, faucets, countertops, appliances (such as your refrigerator, washer and dryer, and stove), light fixtures, outlet covers, and more.

Your HVAC system and electricity will be turned to make sure everything is working properly. You'll also see drastic differences to the outside of your home as workers put the finishing touches on your exterior and landscaping.

🏡 Weeks 14 to 15: Final touches

You're almost ready to move in. The only thing left is final inspections where not only does the inspector ensure everything is up to code and meets proper safety requirements, but you'll also do a final walk-through inspection, taking note of any issues or minor changes you'd like to have done.

Once everything looks good and is up to both the inspector's and your standards, you can close on your home, move in your belongings, and revel in the fact you're now living in your ultimate dream home.

Ready to find land and build your dream home?

If you're ready to buy land for your one-of-a-kind custom build but aren't sure where to start, Clever can help.

We can connect you with a top-rated local real estate agent who specializes in land purchases and can help you find the right property for your needs and budget.

And, if your purchase qualifies, you could get a cash-back refund when you close on your new property!

👋 Next Steps: Talk to an expert!

If you're weighing your options for buying or selling a house, Clever can help!

Our fully-licensed concierge team is standing by to answer questions and provide free, objective advice on getting the best outcome with your sale or purchase.

Ready to get started?

Give us a call at 1-833-2-CLEVER or enter your info below. Our concierge team will be in touch shortly to help.

Remember, this service is 100% free and there’s never any obligation.

FAQs about buying land to build a house

How much does it cost to buy land and build a house?

The average cost to build a house is $296,652 (or $114 per square foot), according to a 2019 survey conducted by the National Association of Home Builders (NAHB). Your actual costs will depend on factors like the price of your building lot, your new home's size, and the cost of building materials in your area. Buying land to build a house? Learn how to get a cash-back refund when you close!

What are the steps to buying land to build a house?

The major steps to buy land and build a house include: finding land for sale, arranging financing, understanding zoning restrictions, determining whether your lot is suitable to build on, evaluating the cost of adding utilities, and getting quotes from local home builders. Ready to get started? Find the best websites for buying land.

How do you finance buying land to build a house?

When you're buying land to build a house, there are several ways to finance your building lot and construction. Many lenders offer construction loans, which cover the cost of buying the land and building your new home. You can also get a land loan, although these loans usually have higher down payment requirements and interest rates. Learn more about getting pre-approved for a home loan.

How much of a down payment do you need when buying land and building a house?

Down payment requirements depend on your loan type and lender. On a new construction loan, you may be able to find lenders that require down payments of 10% or less. But, if you're purchasing raw land to build on later, your lender may require a down payment as high as 50%.

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