There are a few ways to buy land – and each sort of leads down their own labyrinth of project financing options. And I’ll start right away that we’re not financial experts or bankers. Treat this like water cooler conversation and go talk with your trusted advisors.

First, have a budget in mind that’s driven off one of the following options. Talk to your banker or CPA or whoever long before you engage a realtor.

Pay Cash

The simplest way to buy land is to pay with cash. This of course assumes you have the cash to do that with. If not, skip to the next section. If you do – but before you proceed – be aware of a few things.

All Cash

You have the means to buy the land, run all the utilities, and finish the building. That’s great! The only timeline constraints you might run into are those associated with CC&Rs, HOAs, and building permits.

Most jurisdictions won’t issue an occupancy permit without at least a functioning bathroom and kitchen (so in other words – the house is done). So don’t plan to live in it while you’re building – because you can’t.

The other thing to keep in mind – because no lender is going to force the issue – is to get a builder’s risk policy or new construction endorsement added to a homeowner’s insurance policy. Without it, you’re assuming all the liability and property risk associated with the build (theft of materials, hurt neighbor who wanders onto your lot, etc.).

Otherwise, you’re free to do as much of the work yourself as your jurisdiction allows and take as long as you want. In this case – your budget is whatever is in your piggy bank.

Cash for Lot + Loan for Project

The value of the land will count as equity towards any type of construction loan you may need to complete your project. Construction loans assume of course that you have a budget, contractor (most lenders won’t allow self-performance of any trades), and the wherewithal to both qualify for and pay the mortgage. So this can be a good option for some – just keep in mind that the cash you have plus whatever you pay for the land needs to cover your equity requirements of the full loan amount. Also keep in mind that once the loan starts, so does the clock. Most lenders won’t allow a residential project to go beyond 12 months.

Loan for Lot

Traditional

Getting a loan for the lot – whether in full or partial – is an option. Not every lender is going to offer this as it’s much more rare. And because of that, blanket statements made here are going to vary in accuracy based on who’s offering the loan.

More often then not, these are treated a lot like a construction loan. You may be able to put very little down to secure the loan. But, like a construction loan, the lender is going to want a fully fledged plan for the entire project at the time of purchasing the lot. There’s a good chance that means bids and drawings in hand – contractor selected. It’s also pretty common for the purchasing of the lot to start the clock on how long you have to complete the project. Again, residential projects are typically given 12 months by most lenders.

If you are considering the traditional route – be sure to also consider Energy Efficient Mortgages. These are vehicles that allow for larger upfront costs on the assumption of ongoing operating costs will be lower.

Alternative

Another way to finance a lot and/or construction purchase is through an investor, family financial gift, and alternative lending sources. For example, you may already own a home. If you have enough equity in your home, you may be able to do a home equity line of credit (HELOC) or cash-out refinance (depending on mortgage rates) to access the capital needed to fund your project. The HELOC in particular is a terrific option, especially if you plan to sell the home upon the completion of the new build. This article from Discover does a good job of explaining how each of these home equity tools work.

Finding Land

We have a guide on what to look for when you’re buying land. Paired with this article – you’ll know what you’re looking for and how you’re going to pay for it (and thus your budget) – now is a good time to engage a realtor and set up those Zillow alerts. I’d suggest finding a realtor who lives or is intimately familiar with the area you’re interested in. Especially in rural and small-town communities – there’s often more available than ever hits the MLS.

Another tool that can be incredibly helpful is OnX Hunt. With their paid membership, you can easily see the boundaries of various public and tribal lands; as well as, private parcels and who owns them.