How to Buy Property and Build a Home: Your Ultimate Buyer’s Guide

How much does land cost?

According to data from the United States Department of Agriculture (USDA), the average value of farmland in 2023 was $4,080 an acre, which includes the values of both the land and any buildings on it. Farmland is different than residential land, however, and in the same way home values are likely to vary by state, location within each state, neighborhood, and surrounding amenities, so do land values. You might live in an area where it’s easy to buy a sizable piece of land for $10,000. In other parts of the country, that same piece of land might go for $100,000 — or more!

Leyba says that because costs can vary greatly by region, figuring out your budget is absolutely the most important thing to do prior to buying land and building. “My first question to potential buyers is: ‘What price point do you want to be at when the final build is done?’” he says. “This answers a lot of questions insofar as location, land improvements, and the build itself.”

Leyba explains that in Santa Fe, buyers might be able to find land for as little as $100,000 or less, but that doesn’t mean the land cost ends there. “You could end up having to do another $300,000 to  $400,000 in land improvements before you can build,” he says.

You’ll want to investigate whether or not there’s a well, get a flow test on it, and make sure it’s potable. You’ll also want to find out how much it will cost to put in a septic, bring in power, build a driveway — all of which are things you can make part of your due diligence.

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  Jerome Leyba Real Estate Agent at Keller Williams

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Things to consider when buying land

Finding property in an area or neighborhood you like is only a small part of the equation when it comes to buying land. If you’re going to have a house built on that property, you also need to understand all the things that go into making that land ready for a new build.

Soil

According to Leyba, soil type and condition is one of the biggest issues a buyer can face when it comes to buying land and building.

“If you talk to a structural engineer, they will advise you to get a soil test,” he says. “This should be part of your due diligence on the property.”

“If you’re buying on your own, you’ll want to have the soil tested before you commit,” adds 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.”

Due diligence, in which a buyer has the opportunity to make sure the land they are purchasing is actually buildable, should be part of the negotiation and built into your offer when you find land you want to buy.

“You’ll want to investigate whether or not there’s a well, get a flow test on it and make sure it’s potable,” says Leyba. “You’ll also want to find out how much it will cost to put in a septic, bring in power, build a driveway — all of which are things you can make part of your due diligence.”

Zoning

Van Camp 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.”

She 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.”

Your property also may or may not fall within local jurisdiction for services like utilities, water (in which case you’ll definitely need to install a septic tank and drill a well), or trash removal.

Financing

Getting a loan on a piece of land is a different process than a traditional mortgage. You’ll need to decide if you’re planning to build right away, or whether you prefer to buy the land and then wait a few years before building.

Land-only loans can be tricky for lenders, because unlike a house — where you can get an appraisal or look at comparable sales — it’s difficult to determine the value of raw land. Interest rates for land loans are often higher than mortgage rates, and loan terms are usually much shorter.

“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, zoned, and ready to build. 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.”

Types of land loans

While land loans aren’t always easy to come by, there are a few ways to finance your purchase, depending on the type of land you’re buying, its location, and how soon you plan to start building your new home.

Raw or unimproved land loans

Raw land is property that lenders consider completely undeveloped. No utility lines, no well, maybe not even a road to the property. Unimproved land is one step up from raw, with perhaps some utility access or a well.

If you want to buy raw or unimproved land, expect your lender to require a down payment of at least 20%, along with detailed information and a timeline on how you plan to develop the land. Lenders generally consider these types of loans to be riskier because it can be difficult for them to make their money back on the property if there is a foreclosure. They’ll want you to have stellar credit, and your interest rate is likely to be much higher than with a traditional mortgage loan.

Some lenders also have restrictions for the amount of money you can borrow to buy raw land, which could mean an even higher down payment, and shorter loan terms.

Applying for a loan through your local bank or credit union might be the way to go for these types of loans, as they are likely to have more information and knowledge about the land’s location and potential value, and are also vested in the community as a whole.

Improved land loan

Improved land means that the property already has utilities onsite, a well, and road access, and the lot is often in an established residential neighborhood as opposed to in a more remote or rural area.

While you’ll still need a large down payment, land that isn’t going to require you to put in roads or a well is considered lower risk since it’s closer to being ready to build a house. Because it’s usually more expensive than raw land, improved land might not seem like as good of a deal initially — but once you start adding up the costs of bringing in utilities, drilling a well, or putting in a road, it can often be much more cost-effective to buy improved land.

USDA construction loans

If the land you want to buy is in a rural area, you may qualify for a USDA construction loan. USDA loans, which are funded by the United States Department of Agriculture, are intended for low- to moderate-income individuals who are purchasing homes in specific rural regions.

As part of this program, they also offer what is called a Construction-to-Permanent Single Close Loan Program. Funds from this program can be used to buy land and build on it, and the loan covers the cost of the lot, construction costs, inspection fees, and other potential costs. Buyers must meet certain income requirements, and there are strict guidelines as to what constitutes “rural.”

Because these loans are construction-to-permanent, this isn’t the type of loan that will work for buyers who want to buy land now and build in a few years. But for those buyers looking to buy land and go right into construction mode, it could be a viable option if both you and the land you’re buying can meet the USDA loan requirements.

Seller financing

If you aren’t able to get approval from a bank or credit union for a land loan, you might be able to find a property that offers seller financing. Some motivated sellers will offer to carry the loan on a piece of land they’re trying to sell, which can potentially be a win-win for both parties.

With seller financing, you’ll want to draw up a legally binding contract that lays everything out — the loan amount, down payment, loan term, interest rate, and whether or not there will be any balloon payments. Consulting a lawyer is always recommended with these types of transactions — and of course, don’t sign on the dotted line until you have read and understand every facet of the contract.

New construction loans

If you plan to build right away, a new construction loan can be the easiest and most comprehensive way to combine financing your property and the house you plan to build.

Leyba says that for buyers planning to build soon after buying the land, trying to do two separate loans on the land and the house can be a challenge. In this case, a new construction loan might be the way to go.

“A lot of lenders offer construction loans,” he says. “You can connect with a contractor, put a certain percentage down, and take draws from the loan as you build.” Traditionally, these types of loans have you paying interest on the loan until closing, at which time it is bundled into a standard mortgage loan.

Builder loans

If you’re hiring a builder, or if you decide to go the new construction route, Leyba explains that some builders have a preferred lender that they use.

“You sign a contract with them and put down a deposit, they build the house, and then they sell it to you upon completion. They pay for everything upfront, and once the house is done, you have a standard closing,” he says.

Building the house

Once you’ve found the land you want to buy, it’s time to think about the house you want to build. This is exciting, but it can also be nerve-racking. Making sure that you hire experienced professionals to take you through each step will go a long way toward keeping the process moving along and will hopefully keep problems and setbacks to a minimum!

How much does it cost to build new?

Like land costs, building costs vary greatly by region. Builder and developer Chris Beucler, President of Blue Heron BH Nexus Division in Las Vegas, says that in his area, new construction costs can range from as low as $175 per square foot to more than $750 per square foot. Land costs in his region can also vary by quite a bit.

“You can buy a lot for as low as $150,000 in some areas like North Las Vegas,” he says. “We also have lots that sell for upward of $2 million.”

New construction costs can also be affected by things like materials and labor costs, which were acute throughout 2020 and 2021. “We’ve experienced increases like I’ve not seen in my entire career,” says Beucler. “At one point, lumber went up 200% in cost. It has since gone back down, but we still have material shortages, as well as labor shortages, which can increase costs.”

Finding a builder

There are several things to consider when looking for the perfect builder for your dream home. “You want someone with a strong portfolio,” says Leyba. “You also want someone who knows your particular area and what kind of things they might be dealing with.”

He notes that in Santa Fe, there are different requirements for building in the country as opposed to the city, as well as specific neighborhoods that might have homeowners associations with certain requirements for new builds.

Beucler suggests that buyers look at resale homes that were constructed by the builder they want to hire and do research on the builder — check how long they’ve been in business, and whether they have a good reputation.

“You really want to dig in, and you want to make sure the builder has been around a long time,” he says. “We’ve had people start with one builder and end up coming over to us.”

New construction vs. custom homes

For some buyers, purchasing a new construction home in a specific development can be a way to get a new house with less overall risk. “It can be a great option,” says Leyba. “It’s not fully custom, but you’re still in a new home, and you do have some choices on things like floorplans, color schemes, and design.”

Beucler says that while people often think they want a custom home, once they realize they can customize a community home, they will go that route.

“Our company is unique in that our community homes are very special and not a traditional tract home,” he says. “Our homes vary from 3,000 to 8,000 square feet on the community side.” He adds that for those clients who really want an extra-custom home, they can build homes that are upward of 15,000 square feet.

The rest of your team

While your real estate agent and your builder are probably the people you’ll rely on the most during your new home build, there are other professionals you’ll need to bring in when you’re buying land and building on it:

Soil engineers: Soil engineers do the soil tests on a property, which gives you an idea of things like the type of soil, moisture levels, and how much fill might be needed in order to make the land buildable.

Surveyors: A land survey helps to make sure that your new home (or fence, or driveway) doesn’t encroach on anyone else’s property, as well as providing information as to whether or not your property is in a flood zone, or if there are other environmental concerns.

Architect: If you have a specific plan in mind for your house, hiring an architect to lay that plan out for you is a good idea. They’ll be able to create a blueprint of the proposed house, with design plans that will help you determine what will work, and what you might want to do differently.

Contractors: If you hire a builder, chances are they will have their own contractors for various aspects of the home’s construction. If you’re doing the build on your own, you’ll probably want to bring in contractors for those things that require specific skills and experience, such as plumbing and electrical.

The timeline

While building timelines can vary, Leyba says that buyers should expect it to take at least 10 months. “That’s on the very aggressive end,” he says. “For a custom build, it’s probably more like 14 to 16 months.” Leyba says in addition to things like various building permits, waiting on materials can sometimes take longer than expected.

Adds Beucler, “Our community builds all go through a design process that takes 90 to 115 days, during which time the buyer is also qualifying for the loan. Then, actual construction takes 8 to 12 months.”

Things that are part of the timeline include:

• Permits — which, depending on your municipality, can include not only a building permit, but also separate permits for mechanical, plumbing, and electrical.
• Clearing the land, which can take time if you have a large number of trees/brush to clear, or need to bring in fill.
• Pouring the foundation, which is done after soil tests.
• Framing the house.
• Various inspections that will take place during the build, which will also include your new construction home inspection at the end of it all.
• Systems installations — this includes electrical, plumbing, HVAC, and anything else you’re installing.
• Hanging drywall.
• Your final walkthrough, where you’ll have a last chance to look for any potential issues or problems.

One homeowner’s experience

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.”

Building a house also means that your projected timeline might not always go to plan. Delays can include zoning problems, utility issues, and labor and materials shortages. If your property is in a remote area, you may have to deal with access for heavy equipment and other machinery.

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

What about when it’s time to sell?

If you’re buying land and building, you might have the idea that this will be your forever home. But things do happen, and you may end up needing to sell at some point. If you decide to buy land and build in a remote location, it may be difficult to find buyers for your property later on.

Again, this is where having an experienced agent makes all the difference. An agent who knows all the ins and outs of buying land and building, will be able to answer any questions you have on both your purchase and a potential sale down the road.

“If you’re not familiar with the [buying and building] process, you either need to become very familiar, or have experts help you,” says Leyba. “They will walk you through it.”

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