Buying Land and Building a Home

Key Takeaways: 

• Building a custom home on acreage involves several steps, including land purchase, home design, builder selection, construction bids, and applying for financial services like construction loans.
• Going with a one-time close option can help simplify your construction loan and final mortgage.
• Cost of materials and labor, average land prices, and other factors can all impact how much you’ll spend to buy land and build a house.

This content has been updated as of July 2025.

Moving away from the hustle and bustle of city life to buy land and build a custom home on acreage is a dream many share. While the concept is simple, the process can be daunting without the right information or support.

First, you’ll need to purchase the land for your future homesite. Texas Farm Credit’s mortgage division can finance anywhere from 5 to 100 acres. The loan process will remain basically the same: you’ll need a minimum of 15 to 20 percent as a down payment, as well as cash to cover the closing costs.

Next steps include designing your home, selecting your builder, and obtaining a final construction bid. We encourage customers to shop around for builders to find the one that’s right for you. You’ll be working closely as they build your home, so you want to feel comfortable with their communication style, work ethic, and trustworthiness.

Once you find the right one, it’s time to start building — which means it’s time to apply for an interim construction loan. Construction loans are typically set up to cover the project’s entire cost, including the land and home construction.

An interim construction loan is very unique. Unlike traditional mortgage loans where the entire amount is advanced upfront to pay the sellers, construction loans pay out in draws.

For instance, the first draw on your loan may be to pay off the existing land loan. Then after pouring the foundation and completing framing, your builder would apply for a draw of funds to cover that cost.

The builder is responsible for draw requests and detailing expenses. You will review and approve the requests, then Texas Farm Credit will advance funds directly to the builder. This will go on until construction is complete, and the total amount of your loan has been drawn.

To close on a construction loan, you’re responsible for another down payment and set of closing costs. Depending on the equity in your property, you may be able to roll the down payment and closing costs into your construction loan.

Most mortgage companies will offer you a two-time close loan. In this scenario, you’ll apply for an interim construction loan, which may include a down payment and closing costs.

Once construction is complete, you’ll apply for your final mortgage, which refinances your land and new home into one conventional mortgage loan. In this situation, you may have some equity built up, which could benefit your loan terms (although closing costs are still unavoidable).

But because Texas Farm Credit specializes in rural lending, we offer a one-time close option. With this scenario, you won’t have to apply for financing, pay closing costs, or go through the closing process again after construction is complete. You simply apply for one loan that covers the construction and final mortgage in a straightforward package.

In other words, we make it simple.

To be considered for a one-time close, you will need your home plans and construction bid ready to go at the time of land purchase.

A one-time close comes with many benefits. You begin building equity in your property sooner. You can lock in your interest rate at the beginning of the whole process. You’ll save the closing costs for the after-construction loan closing.

Best of all, you won’t have to worry about figuring out financing again. You can just move in and enjoy your new home!

Buying a piece of land and building a home on it takes healthy cash reserves, determination, and a lender like Texas Farm Credit who can walk you through each step in the process and save you time and money.

Each home is different, so we treat each mortgage customer with care and fresh eyes. We’ll explain every detail, stay in communication the whole way, and make sure you get the best loan package to suit your needs.

Call us 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. Building a house on land that isn’t fully paid for can be complicated, but not necessarily impossible. It’s always a good idea to consult with financial advisors, legal experts, and local officials to work through the process.

Lenders could allow multiple options.  One is to join the land loan with the new construction loan. However, paying off your land before building your house may help you earn more favorable loan terms for your construction loan.

You’ll need a construction loan to finance the actual build. Construction loans can be either one-time close or two-time close loans. You can learn more about how Texas Farm Credit finances these loans here.

How much is a down payment to buy land in Texas? 

Standard down payments vary and current market conditions should be factored in. A typical down payment for Texas Farm Credit members is 20% of the total purchase price. Paying off land early can offer several financial benefits including the following:

• Interest savings – Interest is calculated on the principal of the loan. The earlier you pay it off, the less interest you’ll accrue. In the long run, this could lead to substantial savings.
• Greater flexibility – Cash will be freed up that may otherwise be used for payments. This flexibility can be directed toward other investments, savings, or expenses.
• Equity utilization – Complete ownership increases equity in the property and can be leveraged for future projects or investment opportunities.

Is it smart to buy land and build later? 

If you are prepared for the financial and logistical aspects, buying land with the plan to build later can be a wise decision. Some buyers choose a lot location first, then build their house later. This allows them to secure a location they love early in the process, then spend time saving money for construction and building equity in the purchased land.

It’s important to do thorough research, understand your long-term goals, and ensure you have a solid plan for both the land purchase and future construction.

Is it cheaper to build or buy a house? 

Each situation is different, and the decision to build or buy a house depends on your circumstances and priorities.

Long-term, it could be more expensive to build a house from scratch on raw land rather than buying 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, for example.

However, the benefit is you get to choose exactly how your new home is built. For a full cost breakdown of building vs buying a house, learn more here.

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. Land prices vary quite dramatically across the state of Texas, while construction costs are slightly more consistent. Key factors that affect construction costs are land acquisition, labor, materials, and regulatory requirements in the area.

Assuming average prices for components and services like architectural plans, site preparation, foundation, framing, plumbing and electric, interior finishing, and all associated permits, a 2,500-square-foot home would likely cost somewhere between $300,000-$500,000.