How To Purchase Land and Construct a Home: Step-by-Step

Shopping for a house could be sophisticated when the home has already been constructed. Shopping for land with the intent to construct on prime of it’s a good longer course of.

No have to stress. On this information, we’ll stroll you thru seven easy steps for the way to purchase land and construct a home. We’ll cowl the completely different financing choices accessible to you after which talk about the professionals and cons of getting a house this fashion. Hopefully by the top, you’ll have the ability to resolve in case you’re within the course of or if one other kind of property can be a greater possibility.

How To Purchase Land and Construct a Home in 7 Steps

These steps provides you with a very good overview of all that goes into shopping for land and constructing a house. Have in mind you don’t have to comply with these steps so as, and chances are you’ll even have the ability to skip sure elements. For instance, you don’t want to fret about financing choices in case you plan to buy the land and pay for the development with money.

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1. Determine the place you need to purchase and construct

The very first thing it’s worthwhile to do is resolve what space you need to be in. The place would you want to purchase land and later assemble your house? There are a number of essential components to contemplate when making this resolution.

Set your price range

How a lot can you pay for this challenge? How a lot of a down fee do you’ve gotten saved up? Setting a price range will aid you filter what areas to look in. You’ll want sufficient to not solely buy the land but in addition to construct the house. Listed below are some bills to bear in mind:

  • Land buy prices: That is how a lot you’ll spend on simply the land. Relying on how a lot land you buy and the placement, this will price simply as a lot if no more than the house development.
  • Building prices: That is how a lot you’ll spend to construct the house, together with issues like supplies, permits, labor and so forth.
  • Financing prices: In case you use financing, you’ll be answerable for a down fee and  closing prices, and also you’ll additionally pay curiosity on the mortgage along with your month-to-month fee. There can also be extra prices like personal mortgage insurance coverage (PMI), relying in your mortgage phrases.
  • Utilities and infrastructure prices: These prices embrace putting in electrical energy, getting hooked as much as the municipal water and sewage system, putting in a nicely, cable and web, and so on.

Think about zoning legal guidelines and restrictions

Earlier than you begin picturing your dream dwelling on a plot of land, it’s essential to contemplate the native zoning legal guidelines and restrictions. There could possibly be restrictions on the dimensions or kind of the constructing, in addition to different restrictions like how shut development could be to the property line or any extra environmental issues.

You don’t need to make investments your whole capital right into a plot of land solely to search out out that the development you had deliberate would violate these rules. 

Think about what day by day life will appear to be

What kind of web is accessible to be put in the place the property is positioned? Will you have the ability to connect with metropolis water and sewage, or will it’s worthwhile to set up a nicely? If in case you have robust preferences concerning your utilities and infrastructure, it’s essential to search out out what choices can be found earlier than committing to a purchase order. 

If you understand that you just aren’t prepared to contemplate putting in a septic system and a nicely, that can slender your search to areas which have the choice to connect with the native municipal water system.

2. Think about the way you’ll pay for the land and development

Even in case you don’t have the money readily available to pay for the land buy and development, there are a number of completely different financing choices accessible. However a phrase of warning: you might need to go looking a bit to search out lenders prepared to supply a few of these mortgage varieties.

Building Mortgage

Building loans are short-term loans that cowl the prices of constructing a house. As a substitute of delivering the funds in a lump sum, lenders give the cash in phases as the house is being constructed.

Building loans could be structured in such a approach as to additionally permit the borrower to buy the land the house will likely be constructed on.

Building loans is usually a good possibility however could also be exhausting to search out due to the chance and complexity related to them. 

Land mortgage

Land loans are a financing possibility particularly centered on land purchases, therefore the title. Normally, when a borrower makes use of this kind of mortgage, they’ll mix it with a unique kind of financing to truly construct the house, or use money.

Presently, our affiliate companion Rocket doesn’t supply land loans, nevertheless, they might help you refinance an present land mortgage into a conventional mortgage as soon as the house has been constructed.

U.S. Division of Agriculture (USDA) mortgage

In case you plan to buy land in a rural space and use it as your major residence a USDA mortgage could possibly be a very good possibility for you. With a USDA development mortgage, you need to use one mortgage to buy the land and assemble the home. As soon as the home has been constructed, the mortgage successfully transitions right into a everlasting mortgage with a set charge.

Needless to say there are particular location and revenue necessities you’ll want to satisfy in an effort to be thought-about for a USDA mortgage. 

Land contract

Land contracts are a sort of vendor financing. Basically, as a substitute of taking out a mortgage from a conventional lender, the client takes out a mortgage from the vendor and agrees to pay it again over time.

There are some dangers related to this kind of association. These loans typically include a balloon fee due on the finish of the mortgage time period in addition to increased rates of interest.

Nevertheless, in case you’re capable of work out an settlement with the vendor, this is usually a good possibility for many who would possibly wrestle to search out different sorts of financing.

Get permitted to purchase a house.

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3. Assemble your group

Relying in your circumstances, you won’t want all of those professionals in your nook – a number of the professionals you’re employed with may fill a number of roles. Nevertheless, in case you’re a first-time dwelling purchaser, we completely advocate having somebody you possibly can belief that can assist you with all of those elements. 

  • Actual property agent: It’s exhausting to overstate how helpful a very good actual property agent could be. They are going to aid you with every part from discovering the property to negotiating the worth. They could even have the ability to assist discover contractors to construct your dream dwelling.
  • Mortgage lender: You’ll want to trace down a lender who affords the sorts of financing which are greatest for you. When you do, it’s nonetheless value taking the time to speak to a number of lenders and ask them questions so to make certain they’re one of the best match to your wants.
  • Architects and designers: Merely put, until you’re an architect your self, you’ll want another person to attract up the blueprints for the house. That is the place the architect or designer is available in. Typically the identical one that attracts up the plans will do the development, however not at all times. 
  • Contractors and builders: That is the group that truly brings the plans to life. They comply with the blueprints and deal with the precise development of the house. (They’re often those with exhausting hats and energy instruments.)

You don’t should assemble the entire group at first of the method. Some folks desire to rent an architect and contractor after they’ve already bought the land. Nevertheless, in case you rent them at first, you permit them to supply their opinion on the land you buy, which will also be advantageous given their expertise and experience in constructing houses.

4. Discover the precise property 

As soon as you understand the place you need to look and the way you’re going to pay for it, you’re able to go land searching. That is the place leaning on a group of pros can actually assist as a result of there are such a lot of various factors to contemplate right here. Beneath are a couple of of crucial ones:

  • Funding potential: Do educated professionals anticipate this land to extend in worth over time? Is it a very good funding?
  • Land situation: What situation is the land in? Is it appropriate to construct on? What are the potential development danger components you’ll want to pay attention to based mostly on the land itself?
  • Proximity to different wants: How far is the closest grocery retailer? What leisure is close by? How are the colleges? These are all essential inquiries to ponder earlier than committing to a property buy.
  • Particular environmental issues: Are there distinctive environmental issues you want to pay attention to? For instance, is there a protected species frequent to the world?
  • Zoning legal guidelines: Are you able to construct the kind of dwelling you need to construct to the dimensions you’d prefer to construct it?

Lastly, in case you’re actually severe a few piece of land, you need to most likely get it surveyed. This may let you know definitively the place the boundaries of the land start and finish. 

Whereas it’s potential to purchase an present home on-line, in case you plan to purchase land and construct on prime of it, we extremely advocate visiting the property in particular person and getting as {many professional} opinions as potential earlier than committing. It’s one factor to purchase an already-constructed home, it’s one other to supervise the development your self.

5. Make a proposal and negotiate

When you’ve discovered the precise piece of land, you’re able to make a proposal. That is the place an actual property agent can advise you on the way to make your supply as aggressive as you can also make it, ideally with out overpaying.

They’ll additionally aid you with the negotiation course of if the vendor doesn’t settle for your supply outright. There are numerous completely different potential negotiation factors from the acquisition worth to vendor concessions to the time to shut.

6. Shut on the property

After the vendor accepts your supply, you’re prepared to maneuver into closing. At a excessive stage, this course of would be the identical as for different actual property transactions. A number of the steps are additionally the identical:

  • Title search: Conducting a title search reveals if anybody apart from the vendor has a declare to the property, or if there are any encumbrances (like unpaid property taxes).
  • Appraisal: Relying in your lender and the kind of financing, an appraisal could possibly be requested to find out the truthful market worth of the land.
  • Insurance coverage necessities: You is likely to be required to acquire land insurance coverage. Even when your lender doesn’t require it, it’s one thing value trying into.
  • Closing prices: These are the prices related to closing on the mortgage. They typically embrace the steps listed above, in addition to charges from the lender and the price of any mortgage factors bought.

7. Start the development course of

As soon as the land is formally yours, you’re capable of start the method of breaking floor and seeing your new dwelling come to life.

In case you haven’t performed so already, now could be the time to assemble the professionals who will really deal with constructing your house. Consider contractors like electricians, plumbers and so forth. There are additionally common contractors who might be able to aid you with a number of elements of the house’s development.

One other benefit of counting on professionals is that they’ll have the ability to advise you on the sorts of permits that it’s worthwhile to apply for and when it’s worthwhile to do it. Take the time to make sure that every part is completed in response to code and is permitted, as this will considerably have an effect on the potential resale worth.

Professionals and Cons of Shopping for Land To Construct a Home

Now that we’ve gone over the method of shopping for land to construct a home, it’s value taking a step again to contemplate the large image. We’ve compiled a listing of the benefits and downsides so to resolve if it’s the only option given your circumstances.


Probably the greatest components of constructing a house is that you would be able to construct it to your liking. The variety of bedrooms, the kitchen structure, wall colours – all of that will likely be as much as you (and your price range).

Privateness and area

Usually talking, buying land and developing your house offers you the choice for extra space and privateness.

Appreciation on funding

Taking over the chance of constructing a house on undeveloped land can speed up the appreciation of that property worth, resulting in a higher return on funding down the street and extra fairness for you.

Time funding

Even when every part goes completely to plan, you’re taking a look at months (if not years) to construct a house. That implies that you’ll want someplace to dwell within the meantime, which may imply the extra expense of renting. In case you’re seeking to transfer into your new dwelling rapidly, then that is most likely not the precise possibility.

Unsure prices

Issues can go unsuitable when constructing a house, and budgets don’t at all times stretch so far as anticipated. Do not forget that the precise price of developing the house could be significantly greater than was agreed upon within the planning phases.

More durable to search out financing

Not all lenders supply financing choices like development loans or land loans. In case you’re desirous about these choices, you might need to do extra legwork to discover a lender prepared to supply them. It’d imply going with somebody native, who is aware of the world nicely, reasonably than a nationwide, established model.

Ultimate Ideas on Shopping for Land To Construct a Home

Working by means of these seven steps for the way to purchase land to construct a home provides you with a good suggestion of the sorts of prices and dangers that include the method. On the one hand, you’ve gotten higher customization choices and you would get an important worth for the funding. On the opposite, the timeline and prices could be unpredictable, and you would have a tough time discovering financing. 

If that looks as if an excessive amount of uncertainty, a brand new development dwelling permits you to buy a house that hasn’t been lived in earlier than with out taking up the trouble of constructing it for your self. You may as well finance it with a conventional mortgage. 

  • First, you’ll need to resolve the place to purchase land and construct. You must have a look at components like your price range, zoning legal guidelines and availability of various utilities
  • There are a number of financing choices you possibly can seek for, together with development loans, land loans, USDA loans, HELOCs and probably vendor financing
  • Professionals of shopping for land to construct on embrace the flexibility to customise, extra privateness and area and the potential for an important return in your funding

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