A land loan allows you to purchase a vacant lot or parcel of land even if you are not ready to build right away. If you have found a piece of land you want to own, a land loan gives you a way to secure it now and plan the build on your own timeline.
Land loans work differently from standard home mortgages. The requirements, down payments, and interest rates often reflect the fact that undeveloped land carries more risk for lenders than an existing structure.
Lender Express can help you find the right land financing option whether you are purchasing a lot in a subdivision, buying rural acreage, or securing land for a future manufactured or site-built home.
WHAT IS A LAND LOAN?
A land loan is a loan used to purchase vacant or undeveloped property. Unlike a home loan, which is secured by a structure, a land loan is secured by the land itself. Because land without an existing home is harder to value and resell, lenders typically apply different underwriting standards than they do for standard mortgages.
Land loans fall into a few general categories based on the type of property. Raw land is completely undeveloped with no utilities or road access. Unimproved land may have some services nearby but is not fully ready to build. Improved lots have utilities, roads, and basic infrastructure in place.
Most lenders offer more favorable terms on improved lots than on raw land because improved lots are easier to develop and sell. Your loan officer will help you understand how your property type affects the loan options available to you.
Key Benefits
- Secure land before it is sold to someone else
- Separate the land purchase from the construction phase and plan on your own schedule
- Build equity in the land while you finalize construction plans
- Land equity may count toward the down payment on a future construction loan
- Options available for raw land, rural acreage, and improved subdivision lots
- Flexibility for buyers planning a manufactured home, site-built home, or future development
How It Works
- You identify a parcel of land and determine whether it is raw, unimproved, or improved.
- The lender evaluates the land, its location, zoning, and your financial profile.
- You are approved for a loan amount based on the land’s appraised value.
- The loan closes and you take ownership of the land.
- You make payments on the land loan while you plan and prepare for the next phase.
- When you are ready to build, the land equity can often be used toward a construction or permanent financing package.
If you want to model out what the total cost might look like from land purchase through a finished home, our mortgage calculator can help you run different scenarios.
Mortgage Calculator: https://lenderexpress.com/mortgage-calculator/
Who This Loan Is Best For
- Buyers who have found land they want to own but are not ready to build yet
- Buyers planning a custom home on a specific lot
- Buyers in rural areas purchasing acreage for a future home site
- Buyers who want to place a manufactured or modular home on owned land
- Investors or future homeowners who want to secure a lot in a growing area
A land loan is NOT the best fit for buyers who are ready to build immediately and want to finance both the land and construction together. In that case, a construction loan that wraps in the land purchase may be the better option.
BASIC REQUIREMENTS
General Requirements
- Down payment is typically higher than a standard mortgage, often 20 to 35 percent depending on the land type
- Credit score requirements vary but many lenders look for 680 or higher
- Lenders evaluate the land’s zoning, utilities access, road access, and intended use
- A survey or legal description of the property is typically required
- Improved lots with utilities and road access qualify for more favorable terms than raw land
- Rural land may fall under USDA or agricultural lending guidelines in some cases
Your loan officer will review the specific parcel and match it to the right financing option based on the land’s characteristics and your plans.