Buying land: costs, financing and checks

Ways to finance land

Which lenders in your area offer these loans, and on what terms, is a question for the lender. A lender may also offer its own land or lot loans outside these programs; this guide covers the federal rules I could read.

How an FHA construction-to-permanent loan counts the land

The FHA maximum mortgage is based on the lesser of the appraised value or the documented acquisition cost. For land you are buying or have owned six months or less at case number assignment, the land counts at the lesser of its cost or its appraised value. For land owned more than six months, or received as a gift, it counts at the appraised value (Handbook 4000.1).

An example with made-up numbers: you bought a lot four months ago for $50,000, and it now appraises at $60,000. The land counts at $50,000. If you had owned it eight months, it would count at $60,000. The builder’s price and your own options and costs are added to get the acquisition cost.

Fannie Mae’s single-closing loan divides the loan amount by the lesser of the purchase price (construction cost plus the lot price) or the “as completed” appraised value of the lot and improvements.

Checks before you buy

Septic and water. If the lot has or will need a septic system, EPA says to get the system inspected by a service provider before you buy, and that your state, local government or lender may require it. The “as built” drawing comes from the local health department’s records. For raw land, ask the same office what a new system needs.

Wetlands and streams. EPA says the Army Corps of Engineers issues permits needed for any work, including construction and dredging, in the nation’s navigable waters. EPA and the Department of the Army have proposed to revise the definition of “waters of the United States.” Owning land does not itself require a permit; the work you plan does. Ask the Corps district office or your state agency before you commit. Your state or town may regulate wetlands too.

Flood zone. Congress requires federally regulated or insured lenders to require flood insurance for all buildings in a Special Flood Hazard Area with a federally backed loan (FEMA). Some states and communities also have their own flood-zone disclosure rules. See flood insurance and the NFIP.

Boundaries and access. Order a survey if your lender, title company or contract requires one, or if you need the boundaries marked; see what a land survey costs.

Title. An owner’s title policy protects you if someone later claims a right to the land from before you bought; see title insurance explained.

Local rules. Zoning, building permits, utilities and road access are set locally. Ask the county or city before you sign.

Taxes and basis

The IRS says your basis includes settlement fees and closing costs, and lists surveys, transfer taxes, owner’s title insurance, recording fees and legal fees (Publication 551, December 2025). If you buy a building and land together, you must split the basis between them so you can figure depreciation on the buildings. Ask a tax professional how your plans apply. For deductions on land you own, see property tax deduction and the SALT cap.

Where states differ

States and counties control zoning, septic rules, wetland rules, property tax on vacant land, disclosure duties and transfer taxes. See Texas property tax, California transfer tax and Texas natural hazards insurance. For the cash you will need beyond the price, read closing costs explained and how much down payment you need.