Buying land to build a home: What to research, what to avoid and how to pay for it

Key takeaways:

• Buying land requires more research than buying an existing home. 
• Financing vacant land is different from getting a mortgage.
• Professional guidance is not optional.

Building a custom home starts with finding the right piece of land. But unlike buying an existing house, where the structure, utilities and road access are already in place, buying land means evaluating what is not there yet and determining what it will cost to get it there.

A vacant lot can look like a blank slate. In practice, it comes with zoning rules, underground conditions, environmental restrictions and infrastructure questions that do not apply to an existing home. Buyers who skip the research can end up owning land they cannot build on, or land where building costs far exceed what they planned.

"Never assume an empty lot is ready for immediate home construction," said Andrew Fortune, a real estate broker with Great Colorado Homes in Colorado Springs, Colorado. "Raw dirt hides expensive secrets below the surface. Patience prevents buyers from making bad financial mistakes."

This guide covers how to evaluate land, what due diligence to complete before making an offer, how financing works and what risks to watch for.

Related content:

• Building a custom home in 10 steps 

As with buying a home, working with a real estate agent is standard practice when purchasing land. But not every agent has experience with vacant land transactions. The negotiation, contingencies and due diligence involved are different from a typical home sale.

Look for an agent who has a track record of representing buyers and sellers in land deals. The Realtors Land Institute, affiliated with the National Association of Realtors, provides specialized training for agents in this market segment and maintains listings of vacant land for sale.

An experienced land agent can help you negotiate contingencies that protect you if the land turns out to be unbuildable. For example, a contract might include a contingency allowing you to exit the deal if a soil test, zoning review or environmental assessment reveals a problem.

You can start your land search on Homes.com and its sister site, Land.com, both of which list properties for sale.

Do not buy land sight unseen. Some conditions do not appear on a paper survey or in listing photos, and sellers may not disclose details that only an on-site visit will reveal.

Walk the entire lot and look for:

• Topography. If the land is steep, it may limit where and how a house can be built. "Ask the architect if the natural grade supports your specific layout," Fortune said. "People who buy dirt before consulting a builder completely limit their options. A steep downward slope requires a specific walkout basement design." 
• Wet or low areas. Low spots that collect water may not be suitable for a foundation. 
• Vegetation. Dense tree cover or brush may need to be cleared before construction. In fire-prone areas, wildfire mitigation requirements could add cost and restrict what you build. 
• Access. Is there a road to the property? Can construction equipment reach the building site? "Ask your builder about access to heavy equipment throughout the construction phase," Fortune said. "Concrete trucks cannot climb steep temporary dirt driveways. Involve your design team before signing a contract." 

Visit the property after a rainfall to observe drainage patterns. Walk it at different times of day to understand light, noise and how the land feels in practice.

Before making an offer, confirm with the local government that the land is zoned for residential use and that the home you want to build is permitted under the current code.

Zoning is set at the state, county or local level in the United States. There is no federal zoning system. Zoning rules can dictate:

• What the land can be used for (residential, commercial, agricultural, mixed-use). 
• How tall a structure can be. 
• How close to the property line you can build (setback requirements). 
• How much of the lot can be covered by structures. 
• Whether a garage is required, and where it must be located. 

"Always verify zoning directly with the county, not from the listing sheet," said Alexei Morgado, a Miami, Florida, real estate agent and founder of Lexawise, a test prep company for real estate exams. "Sellers often don't know what they actually own, and listing descriptions carry no legal weight. In addition to government zoning, a homeowners association may impose its own restrictions if the lot is in a subdivision."

"Architectural control committees wield lots of power over custom-home builds," Fortune said. "These local neighborhood boards can legally dictate the home's exterior paint colors. They might even force you to use unnecessarily expensive roofing materials."

Also check for overlay districts, such as flood zones, historic preservation areas or environmental protection zones, that may further restrict development.

Do not assume you can get property rezoned. The process is slow, uncertain and can be denied outright.

Related content:

• Zoning rules for custom-home land: What to check before buying 

Soil conditions determine what kind of foundation your home will need and how much site preparation will cost. Some lots look buildable on the surface but have conditions underground that make construction difficult or prohibitively expensive.

"A professional soil test provides the real truth about your lot," Fortune said. "Engineers drill deep holes into the earth to analyze the dirt. They look specifically for solid sheets of underground bedrock. Hidden bedrock discovered during excavation causes real financial problems. You'll need specialized crews to blast solid rock away."

A geotechnical soil test examines:

• Soil composition and load-bearing capacity. 
• Depth to bedrock. 
• Water table level. 
• Drainage characteristics. 
• Contamination from previous use (particularly relevant if the land was previously commercial or industrial). 

Ask the seller whether a soil test has already been completed. If not, hire a soil engineer before finalizing the purchase.

An existing home comes with water, sewer, electricity and gas already connected. Vacant land may not.

The cost difference can be substantial. If the lot has existing utility connections, site preparation will be simpler. If the land is raw and unserved, you may need to pay to extend water lines, install a well, run electric service from the nearest pole and build a septic system.

"Site prep, impact fees, permits, utility hookups and carrying costs on the land loan can add $50,000 to $150,000 or more before a single wall goes up," Morgado said.

"In rapidly growing Florida counties, a single-family home can easily add $15,000 to $30,000 plus in impact fees for roads, schools and utilities before even getting a permit," Morgado added. "That doesn't include site clearing, grading, well/septic tank installation if there are no municipal services, driveway from the public road or utility extensions, which can easily add another $15,000 to $50,000."

If the property previously had a house on it, a completed survey may indicate whether utilities are still present. For raw land with no history of development, assume you will need to confirm and likely pay for every connection.

Environmental conditions can stop a project entirely or add significant cost.

"Check the FEMA flood zone, too, because homes in Special Flood Hazard Areas have to be elevated above base flood elevation, and that changes your construction costs in a real way," Morgado said.

Also check for:

• Contamination. Former commercial or industrial sites (gas stations, auto repair shops, farms with pesticide use) may have contaminated soil that must be remediated before residential construction is allowed. 
• Wetlands. Federally protected wetlands cannot be developed without permits, and many cannot be developed at all. 
• Protected species or habitats. In some areas, the presence of endangered species or protected vegetation can limit or delay development. 
• Fire risk. In fire-prone areas, building codes may require fire-resistant materials, defensible space around the structure and specific vegetation management. 

These reports should be interpreted by a professional. Even an experienced real estate agent may not have the technical knowledge to evaluate environmental results.

Related content:

• What homeowner's insurance covers — and doesn't — when water damage strikes
• Things to understand before you buy a home in a flood zone

A professional land survey confirms the exact boundaries of the property. This is not optional. Neighbors may have encroached on vacant land, intentionally or not, and boundary disputes can delay or block construction.

If the lot already has a completed survey, check when it was done and whether it is still current. If not, hire a licensed surveyor before closing.

Title insurance protects you against disputes over ownership, boundaries and undisclosed liens. A title agency or attorney will search for:

• Outstanding boundary disputes. 
• Easements for power lines, water mains, sewer lines or roadways. 
• Liens from unpaid taxes or debts. 
• Deed restrictions that limit how the land can be used. 

Any of these can affect whether and where you can build.

The National Association of Realtors has issued advisories about a scam in which buyers unknowingly purchase vacant land that is not actually for sale. Fraudulent sellers identify properties without mortgages, pose as the owners and ask agents to list the land at prices below market value.

Warning signs include:

• The "seller" communicates only electronically and claims to be out of state. 
• The "seller" requests a remote closing rather than in person. 
• The "seller" asks to be paid in cash. 
• The "seller" wants to use their own notary. 

"These scams have defrauded buyers out of great sums of money and left property owners, brokers and agents having to sort out the mess," said Charlie Lee, National Association of Realtors associate general counsel, on the organization's website.

Fraudulent sellers may use fake notary stamps and seals. Genuine stamps have clear, readable text, an official state seal and consistent ink. Buyers can verify a notary's commission number and expiration date against state records.

A conventional mortgage is not available for vacant land because there is no home to serve as collateral. Financing a land purchase requires a different approach.

Land loans. Banks and credit unions offer loans specifically for purchasing vacant land. These typically come with higher interest rates, larger down payments (often 20% to 50%) and shorter terms than a standard mortgage. The lender may cover 50% or less of the lot's value.

Construction loans. If you plan to build soon after purchasing, a construction loan can cover both the land purchase and building costs. Unlike a mortgage, the funds are not disbursed all at once. Instead, money is released in installments, called draws, as construction progresses. Construction loans often have 12-month terms for the building phase and require detailed plans, a licensed builder and a construction timeline.

Construction-to-permanent loans. This type of loan starts as a construction loan and automatically converts to a permanent mortgage once the home is complete. It requires only one closing and locks in the mortgage rate upfront, but limits your flexibility to change lenders after conversion.

Home equity loans. If you already own a primary residence with sufficient equity, you may be able to take out a home equity loan to purchase land. The existing home serves as collateral, which can offer better terms than a standalone land loan.

Cash. Many land purchases are done in cash, particularly for raw or unimproved land, because lenders are less willing to finance parcels with no structure.

Related content:

• How construction loans differ from traditional mortgages 

The most important step many buyers skip is bringing their builder and architect to the property before making an offer. These professionals can identify issues you may not see and confirm whether your design vision is feasible on the specific lot.

"Counties demand a master building permit before any physical work begins," Fortune said. "You must also secure separate plumbing approvals from county inspectors. The approval timeline depends entirely on the local government bureaucracy. Some rural counties approve plans in just a few short weeks."

Your builder should evaluate:

• Whether the lot can support the size and style of home you want. 
• What site preparation is needed (grading, clearing, drainage). 
• Whether heavy equipment can access the building site. 
• How the home will be oriented on the lot for natural light, drainage and privacy. 

Your architect should confirm:

• That the home design fits within the lot's buildable envelope after setbacks. 
• That zoning allows the number of floors, garage configuration and overall footprint. 
• That the natural grade supports the proposed layout. 

"People who buy dirt before consulting a builder completely limit their options," Fortune said.

Related content:

• How to choose the right builder for a custom home

If the land is in an established neighborhood, look at the surrounding homes. The neighboring properties will affect the resale value of whatever you build. A custom home that is significantly larger, smaller or different in style from the surrounding homes may not appreciate as expected.

If the land is in a subdivision, check whether the homeowners association charges regular fees for common areas, private roads or shared amenities. These fees apply even before your home is built.

Also inquire about any planned development nearby. A proposed cell tower, power line, highway expansion or commercial project could negatively affect property value.

• Confirm the zoning allows residential construction of the type you want. 
• Verify setbacks, height limits and lot coverage rules. 
• Check for homeownerS association (HOA) or architectural review board restrictions. 
• Obtain or commission a professional land survey. 
• Get a geotechnical soil test. 
• Check the FEMA flood zone designation. 
• Assess environmental risks (contamination, wetlands, fire, protected species). 
• Confirm utility availability (water, sewer/septic, electricity, gas, internet). 
• Estimate site preparation costs (clearing, grading, driveway, utility hookups). 
• Ask about impact fees for the county. 
• Have your builder and architect evaluate the lot. 
• Obtain title insurance and review for easements, liens and deed restrictions. 
• Walk the property in person, including after rainfall. 
• Verify the seller's identity and watch for scam indicators.