The Complete Guide To Buying Land And Building A House

If you’ve been searching for the right house, supply is tight in many areas across the U.S. The statistics back this up. According to the National Association of REALTORS^® (NAR), supply of existing homes on the market was just 3.3 months based on the December 2024 pace of sales. It’s normally around 6 months. Supply of new homes is better at 8.5 months, but these make up a fraction of the market compared to the existing supply.

Given the challenges of the market, building your own place certainly has some appeal. Rocket Mortgage^® doesn’t do construction or land loans, but we can help you when it comes time to convert to permanent financing. We’ll walk you through how to purchase land and build a home.

Steps To Purchase Land

It starts with deciding where you want to live and ends with making an offer to buy land, but let’s touch on the entire process.

1. Decide Where You Want To Live

Your desired lifestyle and goals for the future are going to heavily influence where you choose to live. You should ask yourself the following questions so you can go in with a clear understanding of what you’re looking for:

• Do you want to be close to a major city?
• Do you enjoy spending time outdoors? If so, what kind of outdoor activities do you enjoy the most?
• Do you have young children?
• Would you like to live in a suburb or rural area?
• Are you retired or close to retirement age?
• How large do you want your house to be?
• Are you building a homestead?

2. Figure Out How You’ll Pay For The Property

Cash on hand is always an option, but not many have that available to them. There are lenders who specialize in land and construction loans. You may also be able to work with the seller for financing.

Land Loans

Land loans are used to purchase the space on which you plan to build. These can be higher risk for lenders because there’s no collateral associated with the loan for them to rely on if you don’t make the payments. You may have to make a higher down payment of 10% – 25%. Terms depend on the lender.

Not all land is the same and this shows up in the cost. Land loans can be used to purchase three types of land:

• Raw: Land without any improvements or access to utilities, like electricity or water.
• Unimproved: Land that has some improvements and access to roads or other utilities.
• Improved: Land with access to most, if not all, utilities and roads.

Construction Loans

Once you have the land, if you want to build on it, you’re looking at a construction loan. These are short-term loans meant to cover the construction time frame, so you should only get one when you’re ready to start building. Some lenders offer construction-to-permanent loans, but these rates tend to be higher than a typical mortgage. One of the usual alternatives is to refinance to a traditional mortgage after construction.

There’s higher risk associated with these loans because there’s no real collateral until construction is completed. But you can make a normal primary residence down payment of 3.5% – 5% if you go with an FHA loan or conventional loan from Fannie Mae or Freddie Mac. These programs have specific builder and construction requirements. Going with a special loan may offer flexibility with a 20% or more down payment.

Land Contracts

Land contracts or agreements under which the seller finances a loan for the buyer based on agreed-upon terms. While they’re often used when buyers can’t qualify for a traditional mortgage, they may have additional benefits for construction because the typical construction loan requires the project to be finished within a certain time frame. If you buy the land and then draw up plans, you may need more time.

3. Start Looking For Land For Sale

When it comes to actually finding land, you can check out online real estate sites and multiple listing services (MLS) in your state. Land is an option under the home types filter on Rocket.com. You may also want to use a real estate agent specializing in land sales because they can help with negotiation and paperwork.

4. Visit The Property

It’s one thing to look on a website and see various angles of dirt or grassland, but you’ll likely want to go there and make sure the land is going to meet your needs. A real estate agent will be able to give you a more exhaustive list of features to ask about based on the area, but here are a few to start with:

• Utility hookups
• Topography of the lot
• Distance from local amenities, like grocery stores and libraries.
• Land use restrictions
• Water rights

5. Get The Land Surveyed

A land survey maps the size and shape of the real estate. This helps avoid future property line disputes, so that no one gets upset when you put up a fence. The cost of the survey is going to vary widely depending on the size and topography of the property, the type of survey being requested, and the distance the surveyor has to travel. According to Angi data from October 2024, the typical range is anywhere from $800 – $5,500.

6. Make An Offer

Your real estate agent can help you with a competitive market analysis to come up with an enticing offer without having to overpay. The seller can then choose to accept, reject, or come back with a counteroffer. Once the price is agreed-upon, then your agent and theirs can work out the contract details.

Steps To Build A Home

Once you have the land, it’s time to work on building your dream home.

1. Hire Experts

Even if you’re skilled in labor, no one can do all the work themselves. You’ll need to assemble a team. The makeup of the people you work with may differ slightly if you build in an existing subdivision than if you build on raw land 30 miles from the nearest neighbor. Additionally, local authorities may have their own inspectors for various items, but you may wish to hire a general home inspector to check out the final work anyway.

This is a non-exhaustive list, but here’s a start:

• Architect
• Builder
• Inspector
• Roofers
• Framers
• Carpenters
• Drywallers
• Painters
• Electricians
• Plumbers
• HVAC specialists
• Interior designers and decorators
• Flooring professionals

2. Get The Right Permits

You’ll need to make sure you have the right permits to move forward. This is for your protection as much as it is for city officials. Not only does it make sure that what you’re doing falls within the bounds of local zoning ordinances, but city inspectors will make sure the work is done correctly for whatever you’re pulling the permit on. You may have to work with city officials quite a bit anyway if you have to run new utilities to your land.

3. Close On The Property

When it comes time to do the construction loan, you’ll probably have a lender, so it’s more like when you close on a regular house and you can rely on them for many of the technical details. It’s different if you’re buying land without a loan (unimproved land may be cheaper) and then developing plans. You’ll want an attorney to help you with the contract and a title search to make sure the seller has rights to the property.

Is Buying Land To Build A House The Right Choice For Your Needs?

While we’ve gone over getting land and the basic process for starting a home build, covering the advantages and disadvantages can help you decide whether this is right for you.

Pros

• You’ll get the home you want: You don’t have to compromise on your vision. If you want the main bedroom on the first floor, a spiral staircase, and a three-car garage, you can have it all.
• You can live (almost) anywhere: You can build anywhere you want as long as it’s in line with local zoning rules. You’ll just have to pay more to have utilities put in if the land isn’t already set up for that.
• Fewer repairs: While everything breaks down eventually, you’ll have a longer timeframe with new construction before worrying about fixes than you would buying a home that’s already been lived in.

Cons

• Cost: It’s often cheaper to go with an existing home than to build one from scratch on land you have to purchase. You can have discussions with the builder to make sure you’re clear on what the budget will be and what happens in the event of cost overruns.
• Longer timeline: Construction takes a while. Not to mention, there’s certain work that has to wait for the right time of year if you live in a northern climate.
• More frustration: Building a home can be stressful. Depending on the land, it has to be prepared before any meaningful home construction can happen. Then you have to go through a series of inspections as construction is ongoing before further funds can be released. Finally, you either have to take a higher rate or refinance your loan into a traditional mortgage once construction is complete.

FAQs About Buying Land To Build A House

Let’s round this out by answering a few lingering questions you may have.

Can I finance the purchase of land and the construction of my new home?

Yes. Specialized lenders can give you a construction loan that covers both the purchase of land and the building of your home. These are typically short-term loans meant to cover the period of construction. You can take a construction-to-permanent loan at a higher rate that is fixed. However, you can also look into refinancing into a traditional mortgage for a potential lower rate. Rocket Mortgage does these end loans.

Do I have to work with a real estate agent to buy land?

You don’t have to work with a real estate agent, but they can be helpful in dealing with the legal paperwork, particularly when there’s no lender involved. They’ll also work with you to determine a fair offer.

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

According to the latest joint report from the Department of Housing and Urban Development and the Census Bureau, the median cost of a new home in the U.S. was $427,200 as of December 2024. The actual cost of land and building a home depends on location, who you hire, and the materials used.

The Bottom Line: Buying To Build Could Give You What You Want

Buying land allows you to build what you want where you want, but it also requires careful planning. There are land loans available and construction loans can also copy the cost of land. Once you complete construction, some of these loans can be converted to permanent financing, but there’s a higher rate. You can also refinance into a traditional mortgage for a market-rate end loan.