By Tim Maxwell
Edited by Samuel MountjoyHow to Get a Loan for Land
Quick Answer
A land loan can give you the funds you need to buy developed or undeveloped land, even if you don't plan to build on it right away. You can obtain land loans from banks, credit unions and through seller financing or even the federal government.
A land loan, also known as a lot loan, is a specialized form of financing that you can use to buy land for residential or commercial purposes. You can get a land loan from a bank, credit union or another lender. They're particularly useful if you don't plan on building right away, which means you wouldn't qualify for a construction loan yet.
If you're planning on buying land in the near future, here's what you need to know about land loans, how they work, what you can use them for and more.
What Is a Land Loan?
A land loan is like a traditional mortgage loan, but it doesn't finance a finished home. Instead, it helps you purchase a plot of raw, unimproved or improved land. It's a good option if you've found the perfect lot for a future home or if you want to buy land now with plans to build a business on it later.
You'll receive the funds upfront to buy the land and then repay the loan over the term of your loan, typically from five to 30 years. In some cases, you may have a balloon payment to make at the end of your repayment term, in which case you'll need to have that money on hand or have a plan to build a property on the lot so you can use a construction loan to pay off the land loan.
Typically, you don't have to provide collateral on a land loan, since there's no structure to secure it with when the loan is approved. That makes these loans riskier for lenders than traditional mortgages, so expect higher interest rates and stricter eligibility criteria.
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How Do Land Loans Work?
Land loans work much like traditional home mortgages, but not surprisingly, there are some distinct differences. Here's how they typically work:
- Interest rates: Expect to pay rates ranging from 1% to 1.5% higher than you'd find on a home loan, since there's no home to use as collateral. The rate you're offered will also depend on your credit history, down payment and other factors. For example, you may get a lower rate if the land has been improved with utilities or road access compared to raw land that's difficult to access.
- Loan terms: Terms for land loans are generally five to 30 years, with 20-year terms being a popular option. If you can manage the higher payments, you may get a more favorable rate with a shorter term loan.
- Land loan qualifications: Because land loans are seen as a bigger risk for lenders, you'll generally need strong credit, reliable income and a strong business plan for the property.
- Property location: You're likely to get better loan terms if the land is in a developed area with access to utilities. Lenders may view rural or undeveloped land as a bigger risk since it's not as easy to develop or resell.
- Land appraisal: Most land loans require an appraisal to verify the property's market value and determine the appropriate loan amount. The lender uses the appraisal as a safeguard to ensure they don't lend out more than the property is actually worth.
Types of Loans to Buy Land
There are three primary types of land loans available to purchase property. Which one you'll need, and your approval odds, will depend on the type of land you're buying.
Raw Land Loan
This type of loan is used to buy land that hasn't been developed in any way. It has no structures, utilities or road access. Consequently, it's the hardest and most expensive type of land to finance, especially since there's no building to use for collateral.
Predictably, lenders often compensate for this risk by requiring larger down payments of 20% or higher.
Unimproved Land Loan
Unimproved land may have a few amenities such as electricity or road access. It just doesn't have all the amenities and utilities needed to be considered fully developed. While loan terms may be marginally better than those for raw land, qualification can still be difficult.
Improved Land Loan
With this type of loan, you can buy a plot of land that has all of the necessary amenities to build a home or business. For example, you can find land in a subdivision that a developer has improved for the purpose of selling off individual lots. You'll also likely find much lower interest rates on improved land loans because the land carries less risk to lenders.
Land Loan Requirements
As with traditional mortgage loans and construction loans, the eligibility requirements can vary from one lender to another. That said, here are some common requirements you may find:
- Credit score: Minimum credit score requirements usually range from the upper 600s to lower 700s, and the higher, the better.
- Down payment: The Federal Deposit Insurance Corp. (FDIC) issues these down payment guidelines to lenders: 35% for raw land, 25% for unimproved land and 15% for improved land. Not all lenders strictly follow these guidelines, but they should give you a general idea of what to expect.
- Debt-to-income ratio (DTI): Lenders typically look for a DTI of no more than 30% or 40%, meaning your monthly debt payments shouldn't be greater than 30% to 40% of your gross monthly income.
- Plan for the property: Your lender will want details on how you plan to use the land.
- Zoning regulations: Lenders want to make sure your plan is legal. They'll review zoning regulations to confirm you can build or develop the property as planned before approving your loan.
As of November 2025, you could expect an interest rate of 6.5% to 8.5% or higher depending on your creditworthiness, loan terms and type of land.
Pros and Cons of Land Loans
A land loan can help you buy property before you're ready to build, but you must weigh the benefits and risks before proceeding.
Pros
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Gives you time: Unlike a construction loan, a conventional land loan doesn't require you to start building immediately.
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Gives you flexibility: If you've found property at an ideal location, you can purchase it now and later build your home or business exactly as you want it.
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Benefit from market growth: If you own a business, a land loan could help you invest in a developing area. If property values and demand increase, it could add value to your land.
Cons
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Can be expensive: Compared to traditional home loans and construction loans, land loans can have higher interest rates and stricter down payment requirements. This is especially true with less-developed lots.
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Realizing your dream can be a challenge: You may face hurdles with permits, surveys or other steps needed to build your home or business. If you run into complications, you may not be able to use the land in the way you want. If you decide to abandon your goal, it can be difficult to sell the land.
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Harder to get: Land loans aren't as widely available as traditional home loans and also have tougher approval requirements. As with any loan, it's wise to get quotes from at least a few lenders to get the best rates and terms.
Is a Land Loan a Good Idea?
A land loan can be a good idea in certain circumstances, but not always. For example, a land loan could make sense if you've found the perfect piece of property but aren't yet ready to build on it. You can design your future home or business exactly the way you want it. You might prefer that path over buying an existing property. A land loan can also be a good idea to finance land in an up-and-coming area and benefit from rising property values over time.
On the other hand, a land loan might not be your best option if you're looking for a low-rate loan or less stringent requirements. And if you're on a tight timeline, you may not want the longer timeline to finance and develop. Zoning reviews, permits and construction delays can make the process slower than buying an existing home or commercial building.
How to Get a Loan for Land
The process of getting a land loan is similar to financing a traditional mortgage, but there are a few key differences. As mentioned, qualifying can be more challenging, but understanding how it works can help you navigate the process more smoothly.
1. Decide on a Type of Land
Consider what type of land best fits your goal. For example, you may want to buy unimproved or improved land to build a custom home. Then create a plan outlining how you'll use the property and any structures you intend to build. This plan will help you compare properties and financing options, and lenders will also review it to understand your intentions for the land.
2. Check Your Finances and Credit
Before applying for a land loan, review your finances and credit to see where you stand. Do you have the minimum down payment amount for the type of loan you're seeking (see the guidelines above)? Calculate your DTI to make sure it's lower than your lender allows, which is usually around 30% to 40%.
Before applying, check your credit reports for any issues that might concern lenders, such as late payments or high credit card balances. Also check your credit scores to make sure they're above 700 to improve your odds of approval and more favorable loan terms. And remember, you have the right to dispute any information on your credit reports you believe to be erroneous or fraudulent.
Learn more: How Do I Check My Credit Score?
3. Research Lenders
Researching land loan lenders takes a little more time compared to traditional mortgage providers because many banks don't offer them. Here are some common places to check:
- Local banks and credit unions are a great place to start since they are more likely to know and invest in the community.
- Government programs: The Federal Housing Administration (FHA), U.S. Department of Agriculture (USDA) and Department of Veterans Affairs (VA) all offer loans for eligible buyers as long as you're planning to build on your land. And if you're buying the land for a business, look into small business lenders, including those offering SBA 504 loan programs.
4. Apply for the Loan
Once you've found the best loan for you, it's time to fill out an application. You'll also need to submit supporting documents like proof of income and your plan for using the land. Your application will then go through the underwriting process where the bank reviews your creditworthiness, down payment and other factors to determine your eligibility.
5. Get the Land Appraised
As your lender reviews your application, they will order an appraisal to verify the property's market value, which could take several weeks to complete. Typically, you'll have to pay $1,500 to $3,000 for the appraisal either upfront or at closing depending on your lender.
6. Close on the Loan
If your loan is approved, you'll need to sign the lender's final documents. Before signing, however, review the loan contract to make sure the terms, rate and other features are what you agreed to during the application process.
You'll also need to pay closing costs ranging from 2% to 5% of the total loan. Depending on your lender, you might pay these fees upfront or roll them into your loan. After everything is signed and paid, your lender will release the funds so you can complete the purchase.
Tip: If you plan to build in the future, keep track of nearby zoning changes or nearby development projects. Those changes could affect the long-term value of your land.
Alternatives to Land Loans
In addition to the financing options mentioned above, there are a couple of alternative ways to buy land that may be a better fit for your situation.
Seller Financing
This type of financing allows you to work with the seller directly to fund the purchase through a land contract, also known as a contract for deed. You'll make payments directly to the seller, not a lender. With seller financing, you may be able to negotiate the terms, interest rate, payment schedule and other details with the seller.
This type of financing may make sense if you're unable to secure financing through traditional lenders or you don't have enough funds for the down payment. However, your name will be on an equity title only. You'll have ownership rights to the property, but the seller will keep the legal title until the balance is paid in full. That could present problems later if there's a disagreement.
Home Equity
If you've built up a sizable amount of home equity, you may be able to access enough of it through a home equity loan or home equity line of credit (HELOC) to purchase the land you want. On the plus side, home equity rates can be competitive with those for land loans. In November 2025, interest rates for home equity loans and HELOCs average in the high 7% to low 8% range. Some lenders offer lower rates of around 6.5%. For their part, land loan interest rates can range from 6.5% to 8.5%.
You also won't have to put down a down payment with a home equity loan or line of credit. However, you wouldn't qualify for the home equity interest tax deduction since the funds wouldn't be used to buy, build or improve the property that secures the loan.
Frequently Asked Questions
Evaluate Your Land Loan Options and Your Credit
As with any loan, it's wise to explore all your options before applying for a land loan. Depending on how much cash you need, you might be able to purchase the land through a home equity loan, HELOC or personal loan.
It's a good idea to check your credit score and report early in the process. If you find issues or your score is a little low, take some time to improve your credit before applying. If your credit is in good shape and you have enough for the down payment, shop around and compare offers from several lenders to get the best rate and terms available.
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About the author
Tim Maxwell
Tim Maxwell is a former television news journalist turned personal finance writer and credit card expert with over two decades of media experience. His work has been published in Bankrate, Fox Business, Washington Post, USA Today, The Balance, MarketWatch and others. He is also the founder of the personal finance website Incomist.
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