Depending on your budget, or if you need to move into your new home within 12-18 months, you should consider purchasing an existing home. It takes a lot less time and money to purchase a home than to construct one. If your timeline is flexible, though, building may be a realistic option for you.

Construction loans and land loans are different from typical mortgage loans. Construction loans are more common, and they cover the land purchase and a 12 to 18-month building process. Typically, construction loans require 20% down, and they convert to conventional mortgages. Raw land loans are not as widely available, but they do not require firm construction timelines. They do, however, often require 25% down with 15-year terms and slightly higher interest rates.

Before purchasing land, it’s important to understand all of the ways land can support and/or limit your construction project. Covenant and watershed restrictions may limit how many structures you can build or how much impervious surface you can create. Plus, zoning can limit your use to residential, commercial, or agricultural use, or a combination of the three.

To turn a piece of land into a homesite, you’ll need to budget for everything from running power to the home to clearing the building site, from cutting in the driveway to installing well and septic systems.

If the land is outside of a municipality with a sewer system, you’ll need to install a septic system, which requires soil solubility testing by an independent soil scientist. This testing will determine what size and type of septic system will work, where it could be located on the property, and importantly, how many bedrooms a site can support.

The value of land is based on its potential, in terms of location, condition, soil suitability, and future use opportunities. Here, the value is the result of your particular desires and the land’s particular characteristics, which is why a thorough understanding of a tract before you buy it is so important.

Sometimes it’s possible to subdivide land, and is one way some people offset some construction costs. Or, it may be possible to subdivide and then create a second homesite for your own use or to sell or rent. Again, whether or not you can subdivide is related to the tract’s soil solubility, legal accessibility, and zoning restrictions.