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Buy Land and Build a House

A Rural 1st loan officer chatting with a client in a rural field.

Building a custom home on scenic acreage is a dream many share. But while the concept is simple, the process can be daunting. That’s why we’re here to share everything you need to know to make this dream come true.

Most mortgage companies offer a two-time close, but because Rural 1st specializes in rural lending, we offer a one-time close option. With a one-time close construction loan, you don’t have to apply for financing, pay closing costs or go through the process again after construction is complete. You simply apply for one loan that covers the project and final mortgage in a straightforward package.

Once you’re preapproved for financing you’ll need to purchase the land for your future homesite. Rural 1st can finance properties of at least five acres, and the loan process will remain the same regardless of the size of the lot.

After the land purchase comes designing your home, selecting your builder and obtaining a final construction bid. We encourage you to spend time researching builders to find the right fit. You’ll work together closely, so you should be comfortable with their communication style and work ethic.

Once you find the right builder, it’s time to apply for a loan. Construction loans are typically set up to cover the project’s entire cost, including the land and building expenses. You’ll be responsible for the down payment and closing costs, and depending on the equity in your property, you may be able to roll them into the loan. Unlike traditional mortgages, where the entire amount is advanced upfront, construction loans payout in draws. For instance, the first draw may be to pay off the existing land loan or to pay your builder after they pour the foundation. The builder is responsible for the draw requests and detailing expenses which you’ll review and approve in our handy digital tool, and then Rural 1st will advance funds directly to the builder. This process will continue until construction is complete and the total amount of your loan has been drawn.

Buying land and building a home takes careful planning and a lender, like Rural 1st, who can walk you through each step in the process and save you time and money. Each home is different and we treat each mortgage customer with care. We’ll explain every detail, stay in communication along the way and ensure you get the best loan package to suit your needs.

Get started today, and let’s make your country-living dream come true!

Frequently asked questions

Can you build a house on land that is not paid off?

Yes. There are multiple options that a lender may allow. One is to combine the current land loan with the new construction loan. Another option is to pay off your land before building your house and use the equity in your land toward your down payment on the new construction loan.

How much is a down payment to buy land?

Standard down payments vary. A typical down payment is 15-20%* of the total purchase price. Paying more than the minimum down payment will allow you to take out a smaller loan and pay less interest long term. Making a larger down payment will also allow you to choose a longer loan term as well.

Is it smart to buy land and build later?

Some buyers choose a lot location first and then build their house later. This allows them to secure a location they love early in the process, then save money for construction and build equity in the purchased land.

Is it cheaper to build or buy a house?

Long-term, it could be more expensive to build a house from scratch on raw land rather than to buy an existing house. If the land is undeveloped, you may have to pay for septic tank installation, a water well, electric line hookups or new permit fees. However, the benefit is that you can choose exactly how your new home is built.

How much does it cost to buy land and build a house?

The cost to buy land and build a house depends on your location and the specifics of the home to be built. Land prices vary dramatically across the country, while construction costs are slightly more consistent.

*A $200,000 loan would require a 15% down payment with a monthly principal and interest payment of $1,381.35 for 360 months based on 7.70% annual percentage rate (APR). Assumes $6,293 in closing costs. Monthly payments do not include amounts for taxes and insurance premiums so the actual monthly payment will be greater if an escrow account is established. Available rates and terms including the APR are subject to change without notice. The APR is based on the best available interest rate as of 06/03/2024.

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