Complete Guide to Land Loans

Everything you need to know about financing land purchases

What is a Land Loan?

A land loan is a type of financing specifically designed for purchasing land without an existing structure. Unlike traditional home mortgages, land loans typically have higher interest rates, larger down payment requirements, and shorter loan terms because they're considered higher risk by lenders.

Types of Land Loans

1. Raw Land Loan

Raw land has no improvements whatsoever - no utilities, roads, or infrastructure. These loans are the most difficult to obtain and require:

  • Down payment: 30-50%
  • Higher interest rates (often 2-3% above home mortgages)
  • Shorter terms (10-20 years typically)
  • Strong credit score (usually 720+)

2. Unimproved Land Loan

Unimproved land has some basic access but limited utilities. Requirements include:

  • Down payment: 20-30%
  • Moderate interest rates
  • Terms of 15-25 years
  • Good credit score (680+)

3. Improved Land Loan

Improved land is ready to build on with utilities, road access, and possibly other amenities:

  • Down payment: 15-25%
  • Lower interest rates
  • Terms up to 30 years
  • Credit score 660+

4. Agricultural Land Loan

Farm and agricultural land has special financing options through USDA and Farm Credit System:

  • Down payment: 10-25%
  • Competitive rates
  • Longer terms available
  • May require farming experience or business plan

Land Loan Requirements

Credit Score

Most lenders require a minimum credit score of 680-720 for land loans. The better your credit, the better your interest rate and terms.

Down Payment

Land loans require substantial down payments:

  • Raw land: 30-50%
  • Unimproved land: 20-30%
  • Improved land: 15-25%

Debt-to-Income Ratio

Lenders typically want your debt-to-income ratio below 43%, though some may accept up to 50% with strong credit.

Land Details

You'll need to provide:

  • Land survey and legal description
  • Environmental assessment
  • Zoning information
  • Access rights and easements
  • Plans for land use

How to Get a Land Loan

Step 1: Determine Your Budget

Use our land loan calculator to determine how much you can afford based on the purchase price, down payment, and monthly payment you're comfortable with.

Step 2: Check Your Credit

Review your credit report and score. Address any issues before applying. A higher credit score means better loan terms.

Step 3: Save for Down Payment

Start saving for the substantial down payment required. Consider that you'll also need money for closing costs, surveys, and other fees.

Step 4: Research the Land

Before making an offer, investigate:

  • Zoning and building restrictions
  • Utility availability and costs
  • Road access and maintenance
  • Environmental concerns
  • Property taxes

Step 5: Shop for Lenders

Compare rates and terms from multiple sources:

  • Local banks and credit unions
  • Farm Credit System (for agricultural land)
  • Online lenders specializing in land loans
  • Seller financing options

Step 6: Get Pre-Approved

Obtain pre-approval before making an offer. This shows sellers you're serious and helps you understand your exact budget.

Step 7: Make an Offer

Once you find the right land, make an offer contingent on financing, survey, and environmental assessment.

Step 8: Complete Due Diligence

Conduct thorough inspections, surveys, and assessments during your due diligence period.

Tips for Lower Interest Rates

  • Improve Your Credit: Pay down debts and fix credit report errors
  • Larger Down Payment: The more you put down, the better your rate
  • Choose Improved Land: Developed land gets better rates
  • Shorter Loan Term: 10 or 15-year loans often have lower rates
  • Have Clear Plans: Show lenders detailed plans for land use
  • Consider Credit Unions: Often offer better rates than big banks

Alternatives to Traditional Land Loans

Seller Financing

The property owner acts as the lender. Often requires smaller down payments and may have more flexible terms.

Home Equity Loan or HELOC

If you own a home with equity, you might get better rates using a home equity loan or line of credit.

Construction Loan

If you plan to build immediately, a construction loan may offer better terms than a land loan.

Portfolio Loan

Some local banks offer portfolio loans with more flexible terms for land purchases.

Common Mistakes to Avoid

  • Not researching zoning and building restrictions
  • Underestimating development costs
  • Skipping environmental assessments
  • Ignoring utility connection costs
  • Not verifying access rights
  • Accepting the first loan offer without shopping around
  • Not accounting for property taxes and insurance

Calculate Your Land Loan

Ready to see what your land loan payments might look like? Use our free land loan calculator to estimate your monthly payments, total interest, and create a detailed amortization schedule.