Disclosure: I sometimes earn products or commissions from affiliate links or partnerships on my blog. I only recommend products and services I trust to serve you. Learn more.
Whether you want to homestead or just have a spot of Earth to call your own, buying land is something that requires patience, preparation, and care. These are the biggest things you should know and do before you buy land.
In 2015 we sold our little mid-century ranch in order to buy 16 acres of beautiful raw land. We wanted to build a cordwood house with our own hands.
Buying land is quite different from buying a house, and preparing to build a homestead from scratch takes a lot of careful financial planning.
Here are the six biggest financial tips we learned from our time buying a rural property.
1. Lending rules are different for unimproved land vs. land with a house on it.
If you are planning to take out a mortgage to buy your land, you will likely need to work through a lender that specializes in land purchases. MANY BANKS WILL NOT LEND FOR UNIMPROVED LAND OR RAW LAND OVER 2-5 ACRES.
This may vary by location, so make sure you check with the banks and lenders in your area first. This is typically because when land has a house on it, the house can be used as collateral in the case of a default. Raw land doesn’t provide the bank with any collateral, so they typically won’t risk lending for it.
We used Farm Credit Mid-America for our land loan and are happy with the terms we have and the customer support we’ve received thus far. There are other lenders out there and, again, this may vary by location, but we did have a hard time finding many lenders who will work with people buying raw land for a homestead.
Related: Check out these books on Amazon for more information about buying and developing land.
The Country Property Buyer’s Guide
Landbook: The small landowner’s guide to buying, improving, maintaining, and selling rural land
Buying and Investing in Land: A Guide for Land Purchase
2. If you get a mortgage for your land, your down payment will be higher.
Again, this goes back to the risk the lender is taking on your land purchase. With a house, you can get a down payment as low as 0%. With land, requirements are anywhere from 10-50% of the purchase price.
That means you’d have to put down up to $30,000 on your $60,000 piece of land. Again, this varies by location and is dependent on your personal credit score, so find lenders near you and ask them lots of questions!
Related: Financing Your Homestead (even if you’re flat broke)
3. Land sometimes comes with “baggage”.
Like houses, raw land can sometimes come with interesting issues that may need resolution before you purchase. In our experience, the land we ended up with had an issue with the mineral rights having been sold by a previous owner. We were able to resolve it fairly easily, but it just about ruined the entire purchase. Issues to look for include (but are not limited to):
- Mineral and water rights
- Outstanding liens
- Easements through the property
- Deed restrictions
Check with the county clerk’s office, the seller’s real estate agent (if any), or your real estate agent (if any) for additional details. Ask an attorney if you encounter any issues like these in the course of your purchase.
Related: 5 Things You Must Do Before Buying Land
4. Draft a hypothetical future budget based on the potential cost-of-living for each parcel.
You will probably have a few parcels on your short list that meet your needs and wants. Draft hypothetical future budgets based on the expenses you are likely to have for each parcel you’re interested in.
Include things like fuel costs (constantly driving into town from a remote property vs. a property closer to town or near an accessible route), utilities (if attached to the grid), off-grid utilities (cost of solar, gas for generators, propane, water, internet options, etc.). Seeing your probable expenses laid out can help you weigh the pros and cons of each property more easily.
Related: Beginner’s Guide to Off Grid Solar
Make sure you look at the property taxes for each piece of land too! This gets forgotten so often and can have a big impact on your budget. In our area, anything over 10 acres is eligible for a farm exemption.
That took our taxable value down from $55,000 to $6,000, which meant that last year we only paid a whopping $24 in property taxes! That will definitely go up when the house is completed, but the discount sure is nice!
Check with your local Property Valuation Administrator to be sure.
5. Evaluate how much it might cost to develop your land and how much you can realistically DIY.
Here are some of the scenarios we actually looked at when we were searching for land:
Property 1 – $55,000: 25 acres with water and electric service, but very far from town and absolutely covered in hardwood trees with no readily buildable spots and no chance to build with passive solar principles, no suitable trees for cordwood building
Property 2 $45,000: 5 acres with water and electric, a graded spot for building (primed for passive solar), and a mobile home (required extensive plumbing work) but the property was all one wooded hill with no area for hunting or gardening, no suitable trees for cordwood building
Property 3 $50,000: 11 acres with an adorable cabin that was unfortunately built without permits (don’t do that!!), nice land but a poor passive solar site and not enough suitable trees for cordwood
Property 4 $60,000): 16 acres with no water or electric and a very long driveway, but with adequate building space to use both passive and active solar, quick access to water and to town without being too close, many suitable trees for cordwood building
Property 4 is the one we ultimately purchased. It has cost quite a bit to get from raw land to building-ready, but it has kept the pace with our hypothetical budgets. It was also the only property that we felt at home on when we were looking.
You’ll get a feeling about each property you see, and that matters! Home isn’t just about the numbers, so weigh those feelings against the numbers when you’re evaluating your purchase.
Related: 18 Things to Look for in a Homestead Property
6. Determine your living arrangements for after your land purchase and work it into your budget.
If your land has no house on it and you intend to build, your potential living situations include:
- Living in your current house (if you didn’t have to sell it in order to purchase your land)
- Living in temporary housing on your land (travel trailer, mobile home, tiny house, etc.)
- Living with friends or family
- Renting an apartment or house
Figure out exactly where you will be staying and determine the monthly and/or up-front costs. Then do up a hypothetical budget including your temporary housing AND potential mortgage costs (if taking a mortgage).
Determine which monthly bills you are still likely to have and which ones you won’t. Estimate amounts to the best of your abilities and evaluate the feasibility of your plans.
So often when we dream about buying land or homesteading we get so wrapped up in the dreaming part that we forget about the practical and financial realities of buying a property.
Dreaming is great, but I can’t stress enough how important it is to go into a land purchase with eyes wide open. Do enough research about your purchase options to ensure you make the best possible choice for you and your family.
Want to do some real planning for your future homestead land? Grab our free quick-start guide!
~~~~~
Curious to learn more? Check out our homestead progress and find out more about our cordwood homestead project here. You should also join us on Facebook, Twitter, and Instagram. I’m always pinning lots of great ideas on Pinterest too! Thanks for reading!
I would add to look at the city plans to see if anything is in the works. My inlaws bought some beautiful land but it turned out that the city was planning on building a movie theater nearby two years down the road. I also found some great tips for people buying land on this site.
Ooh that’s a good one that I forgot about. Thanks for sharing!
I like your tip to check out a lot from a satellite photo. Like you said, there s often a reason for a lot being bargain priced that might not be immediately obvious. Checking out the area and local neighborhood can help you determine whether you really want that land or not. Thanks for the article.
I want to buy some land to build a house on. Thanks for the advice about how some land can come with baggage such as mineral and water rights. Another thing to consider is that you might want to get the land surveyed so that you know you are getting the right amount.
Good point! In our case, the land had just been surveyed and verified with the county clerk, so it wasn’t as big of a deal for us. If we had a smaller tract of land and the boundaries would have impacted the legality of our house site that could have been a major necessity. There are so many things to detail about buying land but these were our big 6. Good luck with your future purchase!
My husband is always talking about buying land. He says there are so many different things we could do with it, and I guess he’s right! Hunting, farming, building a homestead… land is something that is very convenient to have. I love your tip about evaluating the costs. It’s important to know what your budget is BEFORE you make a big investment like this.
My husband has always been the one who was adamant about buying land, especially over 10 acres. In the beginning of our marriage I couldn’t imagine having anything over 2 or 3 acres (because what on earth would we DO with it?) but now I can’t imagine having less than our 16. I love having a place to hike, for my husband to hunt, and for us to grow food (eventually) and build our house. I’m a big fan of building hypothetical budgets when evaluating life changes, so I hope it helps! Thanks for sharing!
Wow, this gets complicated fast! My husband and I considered buying land and having a home built on it until we realized that it would be prohibitively expensive where we live, and we’d do better to just renovate an existing home on a nice piece of land. I’m glad that there are resources like yours out there for people going through this process–there are so many twists and turns in buying home!
It sure does! We were lucky that even in our area there was still affordable land. If building wasn’t something we’d always wanted to do I’m sure we would have found something else on more land to renovate than our first fixer-upper.
Thanks for the great land buying tips. I didn’t know that a lot of banks won’t lend to someone wanting to buy raw land bigger than 2 acres. Good thing one acre is big enough for me and my family!
I think its really important to find out the upfront costs so that you can put down the down payment when the time is ready. My wife and I have been thinking about buying some land and want there to be enough acres for our horses. It would be nice for them to have some extra space to ride around.
An excellent point!
My husband and I have always talked about how great it would be to have a large piece of land. We think it would be a great way to teach our kids how to work and take care of something that belongs to them. I like how you point out that when we are planning our budget to buy the land, it is important that we figure out exactly where we will be living in the meantime and plan that into the budget.
I liked that you had mentioned that if you mortgage the land that the down payment should be a lot higher than with buying a home. My brother and I have been thinking about buying some land to possibly build on or start something on and we weren’t really sure how to go about it. I’ll have to start looking around for some land that’s for sale and if I do get a mortgage I’ll be sure to put a large down payment on it.
Really nice tips. Thanks for sharing ..keep posting 🙂
http://homestead.org/
Thank you so much for listing off many different tips on how to buy land for your homestead. I like the segment where you mentioned how getting a mortgage for your land will result in your down payment being much bigger. This would be perfectly fine for my wife and I since we have been saving money in order to put a bigger down payment on the property. For as long as we can remember, we have wanted to build our dream home, and so we will make sure to find an agent who can help us fulfill this dream.
I think you are right to try and calculate the off-grid utilities beforehand. Know where everything is situated, as well as the average cost would help community planning a lot more effective. Thank you so much for the helpful building tips!
I was on the phone with one of my friends who was asking about getting ranch land for sale. This is the first time that she and her family would be doing something like this. I think that she would appreciate having the forewarning to determine her living arrangements beforehand.
It’s good to know how to buy land. We’ve always wanted to have a ranch to live on, so this is great. It’s good to know that the down payment can be up to 50% of the price, so we’ll start saving now!
what a great article i definitely need to do more research before i live my dream
Thanks for the tip to make sure the land you are buying doesn’t have any issues with water or mineral rights. My brother wants to buy some remote land so he can build a cabin on it and go there for vacations so I’m helping him look. I’ll have to tell him we’ll have to ask about the water and minerals so when he builds his cabin he can easily get running water.