Buying undeveloped land: Pros, cons and how to finance
Senior Content Writer
Quick insights
- Buying undeveloped land may cost less upfront than purchasing a move-in ready home; however, additional expenses are usually required for utility setup, surveys, permits, road access and site preparation.
- Researching zoning laws, utility availability, flood risks and future development plans could potentially help homebuyers avoid unexpected costs later.
- Financing undeveloped or raw land sometimes requires larger down payments and higher interest rates. Most lenders view vacant property as a higher-risk purchase.
Maybe your dream is building a custom home, starting a small farm, creating a future vacation retreat or simply investing in property. Buying undeveloped land could be on your path, but it is very different from purchasing a fully completed home. Utilities may not already exist, and financing could be more complicated. Meanwhile, certain properties may come with zoning or access restrictions. Learning how undeveloped land purchases work can help you feel more prepared before making an offer.
What is undeveloped land?
Undeveloped land, sometimes called raw land or vacant land, refers to property that typically does not yet have buildings, major utility connections or significant infrastructure improvements. Undeveloped land may come without several necessities and niceties:
- Water lines
- Sewer systems
- Electricity
- Driveways or roads
- Internet access
- Gas connections
Some parcels may be completely untouched, while others could already have partial improvements. Those might be cleared areas, utility access nearby or roads. If you’re in the market, undeveloped land may feel appealing because it can offer more freedom and flexibility. However, the lack of existing infrastructure also creates additional planning responsibilities.
Common uses for raw land
People buy undeveloped land for different reasons depending on their personal goals, budget and timeline.
- Building a future primary residence. Some homebuyers buy land first and plan to build a custom home later when financing, construction costs or personal timing align.
- Vacation or recreational property. Raw land may be used for camping, hunting, fishing, ATV riding or creating a future cabin retreat.
- Investment purposes. Certain prospective buyers purchase undeveloped land hoping property values could increase over time as nearby areas grow or develop.
- Agricultural or gardening use. Some parcels may work well for hobby farming, gardening, raising animals or small agricultural projects depending on local zoning regulations.
- Commercial or business development. In some cases, land buyers may plan future retail, office, storage or mixed-use projects if zoning permits development.
- Long-term family planning. Some people purchase land now with the intention of eventually building to raise kids, retire or pass down to future generations.
Pros and cons of buying undeveloped land
As with any real estate purchase, there are potential advantages and disadvantages. Let’s explore those below.
Potential pros of buying raw land
- In some instances, undeveloped land may cost less than existing homes, especially in rural or less populated regions.
- Homebuyers may have more control over future construction plans, layouts, landscaping and property usage.
- Without a structure already on the property, buyers may avoid certain home repair or renovation costs associated with older homes.
- Depending on location and future development trends, land values could possibly increase over time.
- Larger land parcels may offer additional privacy, natural surroundings or distance from neighboring homes.
Potential cons of buying raw land
- Adding water, septic systems, electricity and internet access could become expensive depending on the location of the property.
- Some mortgage lenders consider vacant land loans riskier than traditional mortgages, which may lead to stricter qualification requirements.
- Local governments may limit how the property can be used, subdivided or developed.
- Certain land parcels may not have direct road access, which could create legal or logistical concerns.
- Even undeveloped property may still involve property taxes, insurance, HOA fees or maintenance expenses.
Costs to consider when developing raw land
The purchase price is only one part of buying undeveloped land. Buyers also need to budget for additional costs when building a home:
- Land surveys
- Soil testing
- Septic inspections
- Environmental studies
- Utility installation
- Permit fees
- Tree clearing
- Grading and excavation
- Road construction
- Closing costs
- Property taxes
- Homeowner’s insurance
Ways to finance undeveloped land
Financing undeveloped land works differently than financing a traditional home purchase. Some homebuyers pay cash, while others use specialized land loans or alternative funding methods. The type of financing available depends on several factors, including:
- The location of the property
- Planned land use
- Utility access
- Credit score
- Down payment amount
- Whether construction is planned soon
Raw land loans
Raw land loans are designed for completely undeveloped property without major utilities or infrastructure. Because loan providers typically view these loans as higher risk, homebuyers could possibly encounter:
- Larger down payment requirements
- Higher interest rates
- Shorter loan terms
- Stronger credit score expectations
Chase does not offer this type of loan.
Unimproved land loans
Unimproved land usually has some existing features like nearby utilities or road access but still lacks a completed structure. Financing terms to buy unimproved land may be more favorable than terms offered to buy raw land.
Chase does not offer this type of loan.
Construction loans
If you plan to build relatively soon, a construction loan may combine land financing with future building costs. In many cases, construction loans eventually convert into a traditional mortgage once the home is completed.
Chase does not offer this type of loan.
Seller financing
Some land sellers may offer direct financing instead of requiring prospective buyers to use a bank. Seller financing could potentially make the approval process smoother for some buyers, though terms and protections may vary significantly.
Home equity financing
Existing homeowners may use a home equity loan to buy land if they have substantial equity built up in their current property. This strategy may provide access to funding without taking out a separate land loan, though borrowers could face financial risk if home values change or payments become difficult to manage.
How to buy and finance undeveloped land
The process of purchasing raw land may feel overwhelming at first. Breaking down the process into mini steps could make it slightly easier to navigate.
1. Define your goals for the property
Before shopping for land, think carefully about how you may want to use it. Here are some questions you may want to ask yourself:
- Will this become my primary residence?
- Am I building immediately or years from now?
- Do I want rural privacy or suburban convenience?
- Will utilities already need to exist?
- Is this mainly an investment purchase?
Your intended use of the land may influence location, zoning requirements, financing options and total costs.
2. Research zoning and land restrictions
Not every parcel can legally support every project. Local zoning laws may regulate:
- Residential construction
- Farming activities
- Commercial use
- Mobile homes
- RV living
- Short-term rentals
- Hunting or recreational activities
Check local county and city planning offices before purchasing to help prevent costly surprises later in the process.
3. Evaluate utility access
A beautiful property could still become expensive if utility access is limited. Buyers may want to investigate:
- Water availability
- Septic requirements
- Electrical connections
- Internet providers
- Road access
- Flood zones
In some rural areas, bringing utilities to the property could be a major expense.
4. Compare financing options
Different lenders may have different requirements for vacant land purchases. Shopping around could possibly help buyers compare interest rates, down payment requirements, loan terms, closing costs and construction timelines. Working with loan providers experienced in land financing may simplify the process.
5. Order due diligence reports
Before closing, buyers often order inspections and reports to better understand the property. These may include:
- Boundary surveys: A professional measurement of property lines to confirm exact land boundaries and help prevent disputes with neighboring owners.
- Soil tests: An evaluation of soil quality and stability to determine if the land can support building foundations or septic systems.
- Septic inspections: A check to confirm whether a septic system can be installed properly and meet local health and safety requirements.
- Environmental assessments: Reports that identify potential issues like wetlands, contamination or protected land restrictions that may impact development.
- Utility installation: The process of bringing essential services like water, electricity, gas or internet to the property if they are not already available.
- Permit fees: Required payments to local government offices for approvals needed before building, clearing or developing land.
- Tree clearing: Removing trees or brushes from the land to prepare the site for construction or improved access.
- Grading and excavation: Leveling or reshaping the land to create a stable surface for building, driveways or drainage.
- Road construction: Building or improving access to roads to connect the property to public streets or highways.
This due diligence could decrease the risk of unexpected issues after purchasing undeveloped land.
6. Close on the property
Once financing, home inspections and title work are complete, land buyers can move forward with closing. At closing, buyers may pay down payment funds, loan fees, title fees, recording costs and attorney or escrow charges. After closing, ownership officially transfers to the buyer.
In summary
Undeveloped land may offer exciting opportunities, flexibility and long-term potential. However, the planning, financing and development costs are key considerations. The right choice often depends on your financial goals, timeline, comfort with risk and future plans for the property. For first-time buyers, purchasing land may be part of building a house vs. buying an existing home. Taking time to research zoning laws, financing options, utility access and development costs could help you make a more informed decision before purchasing raw land for the first time.
