Land Loans: How to Finance Buying Land

Land loans finance the purchase of vacant land. They require 20-50% down payments, carry interest rates 1-3% higher than home mortgages and typically have shorter terms (5-20 years). Raw land is hardest to finance, while improved lots in developed areas are easier. Local banks and credit unions are your best sources. If you plan to build soon, consider a construction loan that includes land purchase.

Types of Land Loans

Raw Land Loans

What it is: Completely undeveloped land with no utilities, roads or improvements

Financing challenges:

• Highest risk for lenders
• Lowest resale value
• No collateral improvements
• Hardest to finance

Typical terms:

• Down payment: 30-50%
• Interest rate: 3-5% above home rates
• Term: 5-15 years
• Limited lender options

Unimproved Land Loans

What it is: Land with some development (road access, may have utilities nearby) but no structures

Easier than raw land because:

• Some infrastructure exists
• More development potential
• Better resale prospects

Typical terms:

• Down payment: 25-35%
• Interest rate: 2-4% above home rates
• Term: 10-20 years

Improved Lot Loans

What it is: Building-ready lots in subdivisions with utilities, roads and infrastructure

Easiest land to finance:

• Ready for construction
• In developed community
• Clear intended use
• Best resale value

Typical terms:

• Down payment: 20-25%
• Interest rate: 1-2% above home rates
• Term: 15-20 years
• More lender options

Land Loan Requirements

Down Payment

Land Type	Typical Down Payment
Improved lot	20-25%
Unimproved land	25-35%
Raw land	30-50%

Credit Score

Score	Availability
720+	Best rates, most options
680-719	Good options available
640-679	Limited options, higher rates
Below 640	Very difficult

Interest Rates

Land loan rates run higher than home mortgages:

Loan Type	Approximate Rate Premium
Home mortgage	Baseline
Improved lot	+1-2%
Unimproved land	+2-3%
Raw land	+3-5%

Loan Terms

Shorter than home loans:

• 5-20 years typical
• Balloon payments common
• May be variable rate
• Full amortization less common

Where to Get Land Loans

Local Banks and Credit Unions

Best source for most land loans:

• Know local market
• Portfolio lending (keep loans)
• More flexible on unique properties
• Relationship-based decisions

Farm Credit / Agricultural Lenders

For rural or agricultural land:

• Farm Credit System
• Agricultural banks
• USDA programs (some)

Specialty Land Lenders

National companies specializing in land:

• United Farm and Ranch
• AgAmerica Lending
• Others focused on land

Seller Financing

Landowner finances the sale:

• Negotiate directly with seller
• Often more flexible terms
• May accept lower down payment
• No bank qualification needed

SBA Loans

For business use:

• SBA 504 or 7(a) programs
• Land for business purposes
• Longer terms possible
• More paperwork

The Land Loan Process

Step 1: Determine Land Type and Use

Know before you shop:

• What type of land is it?
• What’s your intended use?
• When will you build (if applicable)?
• What’s your timeline?

Step 2: Find a Lender

Start locally:

• Community banks
• Credit unions
• Ask about land financing specifically

Step 3: Pre-Qualification

Provide:

• Income and asset information
• Credit authorization
• Land details
• Intended use

Step 4: Make an Offer

Purchase agreement should include:

• Financing contingency
• Due diligence period
• Survey requirement
• Title search

Step 5: Due Diligence

Before closing, verify:

• Clear title
• Survey accuracy
• Zoning allows intended use
• Access rights
• Utility availability
• Environmental issues

Step 6: Appraisal

Land appraisal considers:

• Comparable sales
• Highest and best use
• Location
• Development potential
• Access and utilities

Step 7: Closing

Similar to home purchase:

• Title insurance
• Deed transfer
• Recording
• Loan documents

Land Due Diligence

Essential Research

Before buying any land:

Check	Why It Matters
Zoning	Can you build what you want?
Utilities	Water, sewer, electric, gas available?
Access	Legal road access?
Easements	Any that affect your plans?
Environmental	Wetlands, hazardous materials?
Flood zone	Insurance requirements, building restrictions?
Soil/perc test	Can you install septic?
Survey	Boundaries accurate?
Title search	Any liens or claims?

Zoning and Permits

Verify:

• Current zoning classification
• Allowed uses
• Building requirements
• Setbacks and height limits
• Process to change zoning (if needed)

Utility Access

Determine:

• Distance to utilities
• Cost to connect
• Alternative options (well, septic, solar)
• Timeline for connection

Access Rights

Confirm:

• Legal access to public road
• Any easements needed
• Maintenance responsibilities
• Year-round access possible

Land Loan vs Construction Loan

When to Use Each

Land loan only:

• Buying to hold (investment)
• Building in distant future (5+ years)
• Not sure when/if you’ll build

Construction loan (includes land):

• Building within 12 months
• Financing land and construction together
• Converts to permanent mortgage

Advantages of Construction Loan

• One closing (with land)
• Often better terms than separate loans
• Seamless transition to permanent financing
• May reduce total costs

When Land Loan Makes Sense

• Holding land for future
• Building is many years away
• Want to separate transactions
• Can’t yet plan construction

USDA Land Loans

Direct Farm Ownership Loans

For farmers and ranchers:

• Purchase farmland
• Low interest rates
• Up to 40-year terms
• Must be farming operation

Beginning Farmer Programs

Favorable terms for new farmers:

• Lower down payments
• Favorable rates
• Technical assistance
• Land must be agricultural use

Limitations

• Must be agricultural purpose
• Income limits may apply
• Must demonstrate farming ability
• Property in eligible rural areas

Seller Financing for Land

How It Works

Seller acts as the lender:

• You make payments to seller
• Seller holds deed until paid off
• Or transfer deed with mortgage

Advantages

For buyers:

• No bank qualification
• Potentially lower down payment
• Negotiable terms
• Faster closing

For sellers:

• Earn interest on sale
• Monthly income stream
• May sell faster
• Tax advantages possible

Risks

For buyers:

• Seller may not hold clear title
• Limited protections
• May have balloon payment
• Need title insurance

Typical Seller Financing Terms

Term	Common Range
Down payment	10-30%
Interest rate	6-10%
Term	5-15 years
Balloon	Often 5-10 years

Calculating Land Affordability

Monthly Payment Examples

$100,000 land loan at 9%, 15-year term:

Scenario	Monthly Payment
20% down ($80K loan)	$812
30% down ($70K loan)	$710
40% down ($60K loan)	$609

Total Cost Considerations

Beyond the purchase price:

• Closing costs (2-5%)
• Survey ($300-$1,000)
• Soil/perc test ($500-$1,500)
• Environmental assessment (if needed)
• Property taxes (ongoing)
• Maintenance (clearing, access)
• Insurance (may be required)

Common Land Buying Mistakes

Skipping Due Diligence

Mistake: Buying without verifying zoning, utilities, access

Result: Can’t build what you planned, unexpected costs

Prevention: Research thoroughly before closing

Ignoring Carrying Costs

Mistake: Not budgeting for taxes, maintenance, loan payments

Result: Financial strain while land sits unused

Prevention: Calculate all ongoing costs before buying

Overpaying

Mistake: Paying more than land is worth

Result: Underwater if you need to sell

Prevention: Get comparable sales, understand market

Wrong Financing

Mistake: Using land loan when construction loan makes sense

Result: Higher total costs, multiple closings

Prevention: Consider construction loan if building soon

Frequently Asked Questions

Can I get a mortgage on land?

Not a traditional mortgage. Land requires a land loan or lot loan with higher down payments, higher rates and shorter terms than home mortgages.

What’s the minimum down payment for a land loan?

Typically 20-50% depending on land type. Improved lots require less (20-25%). Raw land may require 30-50%.

Are land loan rates higher?

Yes, typically 1-5% higher than home mortgage rates. Raw land has the highest rates; improved lots have rates closer to home mortgages.

Can I use a HELOC to buy land?

If you have equity in another property, yes. You could use a HELOC for the purchase, avoiding land loan rates. You’d be putting your primary home at risk, though.

Do I need a survey before buying land?

Strongly recommended. A survey confirms boundaries, identifies easements and reveals encroachments. Many lenders require it.

Can I build immediately on land I buy?

Depends on the land. Improved lots in subdivisions may be ready. Raw land may need utilities, permits, access development and other improvements first.

What if I want to buy land and build later?

Get a land loan now. When ready to build, you may refinance into a construction loan or get a separate construction loan using the land as equity.