How to Buy Land: A Step-by-Step Guide
Aspiring to be a landowner but not sure where to start?
You’re not alone. Buying land is more difficult than buying a house, and there are extra details you should be aware of to ensure your new property doesn’t come with unwanted surprises. For example, the last thing you want is to buy land that sits under flood waters most of the year or isn’t zoned correctly for your intended use.
In this guide, we’ll break down the basic steps involved in buying land so you know what to expect as you start your search.
Keep in mind that laws regarding land real estate vary between states, so we do recommend consulting appropriate professionals throughout the process. In most cases, it makes sense to work with an experienced land broker, who has helped numerous individuals and families find the right property at the right price.
Questions to Ask First
Why do you want to buy land?
Are you dreaming of a homestead or do you want a pristine hunting retreat? Are you looking to make passive income with a timber tract or start a family farm? Do you want to earn income from your land?
Land ownership comes in many different forms, and your answers may dip into a few different categories. Regardless, get clear on why you want land to begin with because intended land use will shape your search for the perfect acreage.
What are your must-haves?
Take the time to write down all your must-haves. These can vary considerably based on intended use. Wild game and habitat considerations will matter more if you’re looking for a hunting property. Soil, water, and access roads are top of mind for farming endeavors.
Thinking through deal breakers ahead of time will keep your search more focused. It’s also helpful to bring this information to potential brokers so they can match the right property to your goals.
Step 1: Evaluate Your Finances
Before you start your search, create a realistic budget by asking yourself these questions:
- Are you able to make a cash offer?
- If you do not plan to pay in cash, what down payment can you afford?
- How much can you set aside for potential improvements?
- How much can you afford to pay for your land monthly? Annually?
- What’s your credit score?
Obtaining financing for land is more difficult than securing a loan for residential real estate because land represents a bigger risk for lenders. This is especially true for raw land, which doesn’t have any form of collateral on it (like a house).
As a result, lenders look for a higher credit score than for typical mortgages. Most land financing also requires a 20-50% down payment, with the lower end applying to more developed property and the higher end applying to raw land.
When thinking about what you can afford month-to-month or even annually, remember there are also costs associated with land ownership outside of monthly loan payments. Leave room in your budget for utilities, property taxes, and potential improvements to make the most of your new property.
Step 2: Explore Financing Options and Pre-Approval
Don’t wait to learn about loan options. Some of the common ways to finance land include:
- Bank or Credit Union Loans
- Speciality Lenders (e.g. Farm Credit Organizations)
- Government Programs (e.g. FHA, VA, and USDA loans)
- Seller Financing
- Personal Loans
When looking into financing options, consider what will work best for you in terms of down payments, repayment periods, and interest rates.
Ask potential lenders if they offer pre-approval. If so, the lender will pre-qualify you for a certain amount of financing with an estimated interest rate. If you receive a pre-approval offer, you may be able to negotiate a better price because the seller knows they can close faster.
Pre-approval also narrows your search further by giving you a set budget ahead of time.
Step 3: Find a Land Broker
Because land is more difficult to purchase than a house, having the support of an experienced broker will make both your search and the transaction smoother.
However, you shouldn’t settle on just any real estate broker. Seek out a local Land Expert, who understands the regional market and how certain details, such as drainage ditches or easements, might impact your goals.
A broker can help with most of the following steps, like:
- Searching for Property
- Due Diligence
- Preparing an Offer
- Reviewing Paperwork
- Title Searches
When working with a broker, you’ll likely sign a buyer broker agreement. This legal contract will detail both the broker’s and your duties, compensation, and the type of property and price range you’re looking for.
Step 4: Start Searching for Land
If you choose to work with a land broker, they will help you find land for sale based on your needs and budget. Regardless, there are numerous ways to find potential property.
Chances are you’ve already browsed online listings and dreamed of land ownership. Major listing websites, like landsofamerica.com or landwatch.com, offer easy access to thousands of land listings across the U.S. While this can be a great jumping off point, consider expanding your search.
Check local newspapers, go for a drive in the countryside, look for auctions, research parcel ownership info using a tool like Acres, and ask around. It’s possible to find off-market opportunities that have far less competition than the listings you find on major websites.
Step 5: Research the Property
Once you find a potential property, make sure you gather as many details as possible before making an offer. If you’re working with a broker, they’ll conduct due diligence for you to identify any deal breaking details.
Below is a quick breakdown of what to consider when looking at a property. If you’re conducting your own research, a lot of this information can be found through public records and land data tools, like Acres.
- Zoning: Find out if there are any pertinent zoning restrictions that could impede your plans, such as building a house or starting a farm. Rezoning is difficult and requires legal assistance, so it may not be worth the extra hassle or fees.
- Property Lines: Never make assumptions about property lines or rely on word of mouth. Search for county plat maps to get a good idea of where the actual boundaries lie.
- Utilities: What municipal services, like water or electric, are readily available? If it’s raw land, what will be the costs to run utilities to the property?
- Access: In most cases, you’ll probably want to avoid landlocked properties that don’t have access roads. You might also want to consider how long the drive is from the property to nearby towns.
- Rights: Not all rights come with the deed. Some rights, like water or mineral rights, can be sold separately from the land, and you do not want to be surprised by the owner of those rights after your purchase.
- Easements: In a nutshell, easements define access for third parties, such as access for utility companies or even a neighbor’s ability to reach their landlocked property.
- Land Features: Does the elevation limit usable land? How will the soil impact crop productivity? Are there existing structures? Break down as many details as possible and make sure the property’s features align with your goals.
- Property Tax: Find out what you should expect to pay in property tax before you purchase. Does it fit into your overall budget? Are there tax deductions available based on your land use? If needed, consult a tax professional to dig into the nitty gritty.
While research is important, remember that not all details will be reflected on paper. Take the time to walk the land and look for potential trouble areas.
Step 6: Make an Offer and Go Under Contract
If you aren’t already working with a broker or lawyer, it’s advisable to do so for this step. Your offer will be a written contract that includes your contact information, property details, the price you’re willing to pay, and terms of the deal, like inspection periods and contingencies.
A real estate lawyer can prepare an offer that protects you. That way, if the land survey or title search turn up deal breaking surprises (e.g. a large portion of the property lies in a flood plain), you have the option to back out.
Once you’re under contract, the seller will be responsible for providing disclosures about the property, such as flood damage or methamphetamine disclosures. Keep in mind that required disclosures vary by state.
Step 7: Schedule a Land Survey
Your lender or title insurance company may require a land survey, which is conducted by a licensed surveyor. Even if this is not the case, you may want to consider hiring a surveyor for peace of mind.
There are different types of surveys. Lenders are usually looking for a mortgage inspection survey, which verifies deed accuracy based on public records.
A more comprehensive survey not only looks at all public records but requires a site inspection. This identifies what’s included in the deed, if there are encroachments from neighboring properties, easements and rights of way that impact the property, zoning information, and more.
Step 8: Complete a Title Search
Another important step that comes shortly after putting in an offer is the title search.
If you do not have a broker, you can either work with a real estate lawyer or a title company to ensure the seller has a clean title. This means the seller has the legal right to sell the property and the title is free of defects, such as liens or unresolved ownership claims.
As part of the title search, you should also receive forms for the purchase as well as assistance with making sure the deed is documented correctly.
Step 9: Close and Transfer the Deed
On the date of closing, all documents will be signed and the deed will be transferred. Come prepared with a state issued ID and be ready to make your payment. If you’re working with a lender, ensure your financing is squared away before closing day.
Once you close, you will need to file the deed. Who files the deed varies by state. In some states, you will have to do it yourself. In others, a broker can do it for you.
While buying land can be a lengthy process, taking extra time to evaluate a property or working with experienced professionals will increase your chances of finding high quality land at the right price. In general: Get clear on your goals for purchasing land. Evaluate your finances and lenders carefully to find what works best for you. Consider working with a land broker to make the process easier. Seek out as much information about a property as possible before closing.
If you would like help buying land, you can get the conversation started by talking to an AcrePro Land Expert.