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Differentiating between some land and a lot may seem like an easy distinction, but not so fast! The two are, in fact, quite different. All lots can be considered land, but not all pieces of land can be called lots. Are you scratching your head? If so, here’s the distinction:

 A lot or finished lot is a piece of property that is ready for building a house. It may or may not have all the utilities (gas, electric, water, sewer, telephone, and so on) at the site, but they usually aren’t far away.

 Land is a catchall term that people in the construction industry use for any piece of property without a finished, habitable structure. Land can be commercial, residential, or agricultural. Raw land or undeveloped land is terminology that most people in the construction industry use when referring to land that isn’t ready for building.

If you’re anxious to get your new home built or if your finances are limited, plan to buy a finished lot, not raw land. You can find a good loan more easily with a lot, you’ll likely pay a lower down payment, and you’ll have to spend less to prepare the property for building — all resulting in major savings in both time and money.

Raw land can be more difficult or more expensive to finance because it usually requires additional work (often, significant additional work), such as putting in roads and utilities, before building can begin. Fewer buyers are willing to put the time and effort into this type of property, which makes it less marketable than finished lots. As a result, fewer lenders will be willing to lend you the money you need — you may have to find private financing or encourage the seller to loan you the money (referred to as having the seller carryback paper). If you do find a lender, you’ll probably need to make a larger down payment. In most communities, non-institutional individuals (also known as private investors) invest money in real estate — banks usually know these people. (See “Using private or hard money” later in this chapter for more information.)

If you buy raw land, plan to allow yourself more time to complete the entire project, because preparing raw land into a finished lot — getting approvals and permits, building roads, extending utilities to the lot, drilling wells, if necessary, and more — can take months or even years. Make sure you consider the extra time when discussing the term of your lot loan with the seller or lender.