Buying land to build your dream home on is really exciting, isn’t it?! There are fantastic benefits to buying an open piece of land with which to start from scratch. You will get to start fresh and create exactly what you and your family want. However, the process for purchasing your land is somewhat different than the process to buy an already-built home, including the cash you’ll need to get the land purchase deal started. Let’s take a closer look at how much of a down payment you need to buy land.
How Much Down Payment Do You Need to Buy Land?
Buying raw land to put your new home on will likely require a considerable down payment or a full purchase with cash. You will also need to consider the costs for closing and permitting when you buy land. Combining these costs plus any testing fees necessary along with the cost of the property itself will give you a good idea of how much the land will cost you in total to purchase.
From here, you can negotiate whether you will pay for the land in full with cash, put down a deposit or down payment, or include it into a builder’s loan to combine with your home build. Working with a private seller or a builder will put different options into play as well.
Because there isn’t an existing home on the land, making the purchase will require a larger down payment if it is not paid for in full. An asset like a house will increase the value of the property and supply the loan with backup value to support your loan.
Loans for Buying Land Only
Purchasing land only with a loan tends to require a larger down payment. It’s not uncommon to require 20% – 50% to acquire a loan. And remember there will be other costs and fees beyond just the cost of the land sale itself.
There are 3 different types of land you can buy:
- Raw – without utilities, roads, or infrastructure
- Undeveloped – road access and maybe a utility or two
- Developed – all utilities and road access
Developed land is the easiest to get a loan for. It makes the best investment right away and is easiest to build on. It will likely be the most expensive as well, but much of the infrastructure work has been laid already.
The most common loans available are a straight Land Loan. This type of loan is often offered through smaller local banks and credit unions. This type of loan can be expensive, requiring a large down payment and even a higher interest rate.
A USDA Rural Loan is a type of loan that often requires a smaller down payment to purchase land that will be built on. Yet this type of loan is allocated for low to moderate-income earners.
Is It Difficult to Get a Land Loan?
If you do not have enough cash on hand to cover this down payment plus fees, it will be difficult to get a loan for land. There are two other options to consider if you still want to move forward and don’t want to pay the full cost in cash.
- Home Equity Loan or Line of Credit
- Seller Financing
Each of these will require fees to process and you will often still need a good size down payment with seller financing. A home equity loan might not require a deposit but it carries risk as it’s tied to your current home.
Working with an Experienced Memphis Area Real Estate Agent
When it’s time to sell your existing home or buy a great new place, turn to a highly regarded and well-informed local real estate agent. You want someone that you can trust to give you the best advice and know-how for your new home purchase or sale. Check out my other great articles to help you through your home selling and buying experience here in Memphis. Staging homes for sale is also part of my expertise. Please ask me about it when you reach out.
Take a minute to learn more about me. With over 15 years of top-notch service for my clients, I can guide you with your house sale, new home purchase, or buying a great parcel of land. As a top, licensed real estate agent in the Memphis area, showing you the best properties for you and your family is my goal!
Contact me at (901) 828-8919 or drop me a quick note at firstname.lastname@example.org and we can speak in person about your plans and options.
Angie Kelley, Crye-Leike Realtors
(901) 828-8919 or (901) 756-8900