Land loans work differently than home mortgages, and lenders treat raw land as higher risk

A land loan is a loan secured by undeveloped or unimproved property. Unlike a mortgage on a house, the lender has no building to repossess and sell if you stop paying — only the land itself, which may be harder to convert to cash. Because of that risk, land loans carry higher interest rates, require larger down payments (often 20 to 50 percent), and come with stricter terms than traditional mortgages.

Most banks and credit unions will lend on land, but the process and requirements vary widely depending on whether the land is raw (no utilities, no road access, no development plan) or has some infrastructure already in place. A lender will also want to know your intended use: are you planning to build a house, develop commercially, hold it as an investment, or farm it? Each answer changes the loan structure and the lender's willingness to fund it.

The fastest path is usually a credit union or a bank that has lent in your area before and understands the local land market. National banks often decline raw land loans altogether. Specialized lenders — including some mortgage brokers and agricultural lenders — exist specifically for this purpose, but they charge more and move slower.

Key Takeaways

  • Land loans typically require 20 to 50 percent down payment and carry interest rates 1 to 3 percentage points higher than a 30-year mortgage.
  • Lenders want to know your specific plan for the land: building a house, commercial development, or investment holding all affect loan terms and approval odds.
  • Raw land (no utilities, no road access) is harder to finance than land with infrastructure; some lenders will not touch it at all.
  • A local credit union or community bank that has lent on similar land in your area is usually faster and more flexible than a national bank.
  • You will need a survey, proof of road access, and often a preliminary development plan or letter from a builder before a lender will move forward.

What lenders actually look at when you explore for a land loan

A lender evaluating a land loan request is asking three questions: Can you pay? Is the land worth what you say it is? Can I sell it if you don't pay?

For the first question, lenders pull your credit report and look at your debt-to-income ratio — the total of your monthly debt payments divided by your gross monthly income. Most lenders want this below 43 percent, though some will go to 50 percent for borrowers with strong credit and savings. They also want to see that you have cash reserves after closing — typically six to twelve months of the loan payment sitting in a bank account. Raw land produces no income and has no tenant to pay the mortgage, so lenders treat it as pure expense.

For the second question, the lender orders an appraisal. A land appraisal is not the same as a house appraisal; the appraiser looks at comparable sales of similar land in the area, access to utilities, road frontage, zoning, and whether the land has been subdivided before. If the appraised value is lower than your purchase price, the lender will reduce the loan amount, and you will have to cover the gap with more cash down.

For the third question, the lender reviews the title and survey. The title search confirms that the seller actually owns the land and that no liens or easements will prevent the lender from taking it back if needed. The survey shows the exact boundaries, any encroachments from neighbors, and whether the land actually has legal road access — a common problem with rural parcels. If the survey reveals problems, the lender may decline or require you to fix them before closing.

Down payment and interest rate: what to expect

Land loans almost always require a larger down payment than mortgages. A conventional 30-year mortgage on a house typically requires 3 to 20 percent down; a land loan usually requires 20 to 50 percent. The exact amount depends on the lender, the condition of the land, your credit score, and your income.

If the land is raw — no utilities, no road access, or no clear development plan — expect to put down 40 to 50 percent. If the land has utilities, road access, and you have a signed contract with a builder to construct a house, you may get away with 20 to 30 percent down. Your credit score matters: a score above 740 might get you 20 percent down; a score between 680 and 720 might require 35 to 40 percent.

Interest rates on land loans run 1 to 3 percentage points higher than a 30-year fixed mortgage. If a 30-year mortgage is at 6.5 percent, a land loan might be 7.5 to 9.5 percent. Some lenders offer shorter terms — 5, 10, or 15 years — which can lower the rate slightly but raise the monthly payment. A few lenders will offer a 30-year term on land, but they charge a premium for it.

The loan amount itself is capped by the appraised value, not the purchase price. If you are buying land for $100,000 but it appraises at $80,000, the lender will loan only on the $80,000 value. You pay the difference in cash.

Types of lenders and where to look

Not all lenders offer land loans, and those that do have different rules. A credit union is often the best starting point if you are a member. Credit unions typically have more flexibility on raw land than banks, especially if you have a relationship with them and your credit is solid. They also move faster — often 30 to 45 days from process to closing.

A community bank — a bank with branches in your area and a history of lending locally — is the next option. Community banks understand the local land market and are more willing to lend on raw land than national banks. They also have more discretion to work with you if your situation is unusual. Call the bank's commercial lending department or ask for the agricultural lender if the land is farmland.

National banks (Bank of America, Wells Fargo, Chase) rarely offer land loans on raw property. Some will lend on land if it is part of a construction loan package — meaning you are buying the land and building a house at the same time — but they will not lend on land alone. If you approach a national bank, ask specifically whether they offer land loans; most will say no and refer you elsewhere.

Mortgage brokers can connect you with lenders who specialize in land loans, but they charge a fee (usually 1 to 2 percent of the loan amount) and take longer to close. Use a broker if you have already been turned down by local lenders or if your situation is complex.

Agricultural lenders — including Farm Credit and some regional agricultural banks — focus on farmland and rural property. If your land is in a rural area and you plan to farm it or use it for agricultural purposes, these lenders often have better rates and terms than general lenders.

Documents and information you will need to provide

Before you contact a lender, gather these items. Having them ready speeds up the process and shows the lender you are serious.

Personal financial documents: Two years of tax returns, recent pay stubs, and bank statements showing your savings and checking accounts. If you are self-employed, bring two years of business tax returns and a profit-and-loss statement for the current year. The lender wants to see that your income is stable and that you have cash reserves.

Property documents: The purchase agreement or letter of intent showing the price and terms. A survey of the land (if one exists; if not, you may need to order one). A title report or preliminary title commitment showing who owns the land and what liens or easements exist. Proof of road access — this can be a survey, a deed showing an easement, or a county road map. Zoning information from the county or city showing what uses are allowed on the land.

Development plan or builder letter: If you plan to build a house, bring a letter from a builder stating they will construct on the land and the estimated cost. If you plan commercial development, bring a preliminary site plan or letter from an engineer. If you are buying for investment, bring a written statement of your plan. Lenders want to know the land will eventually produce value or income.

Credit authorization: A signed form allowing the lender to pull your credit report. This is standard and required by all lenders.

How the approval process works and what happens next

Once you submit your process, the lender orders an appraisal and a title search. This takes 7 to 14 days. While that is happening, the lender's underwriter reviews your financial documents and the property documents you provided. They are checking whether your income supports the loan, whether the land is worth what you say, and whether the title is clear.

If everything looks good, you move to conditional approval — the lender says yes, but with conditions. Common conditions include: provide a survey (if one does not exist), get a letter from a builder confirming they will build on the land, clear a title issue (such as removing an old lien), or provide proof of road access. You have 10 to 30 days to satisfy these conditions, depending on the lender.

Once conditions are met, you move to clear to close. The lender's attorney prepares the loan documents, and you schedule a closing appointment. At closing, you sign the promissory note (the promise to repay) and the mortgage or deed of trust (the lender's security interest in the land). You pay your down payment and closing costs, and the lender funds the loan. The title company records the mortgage and transfers ownership to you.

The entire process typically takes 45 to 60 days from process to closing. If the land is raw or has title issues, it can take 90 days or longer. If you are buying and building at the same time, the process is faster because the builder's involvement gives the lender more confidence.

Common reasons lenders decline land loans and how to improve your odds

Lenders turn down land loan applications for specific reasons. Knowing them in advance helps you avoid them or address them before you explore.

No clear road access: If the land does not have legal access to a public road, the lender will decline. Before you buy, confirm with the county that the land has road access and that the easement (the right to use the road) is recorded in the deed. If access is unclear, hire a surveyor to clarify it before you explore for the loan.

Low appraisal: If the land appraises below your purchase price, the lender reduces the loan amount. You can challenge the appraisal if you believe it is wrong, but this takes time. To avoid this, order a preliminary appraisal before you make an offer; it costs $300 to $500 and tells you what the lender will likely value the land at.

Weak credit or income: If your credit score is below 680 or your debt-to-income ratio is above 50 percent, most lenders will decline. Before you explore, pay down existing debt to lower your ratio, or wait a few months and make on-time payments to improve your credit score.

No development plan: If you cannot explain what you will do with the land, the lender sees it as speculative and risky. Get a letter from a builder, an engineer, or a real estate agent describing your plan. This does not have to be detailed, but it has to be credible.

Insufficient cash reserves: If you have no savings after the down payment, the lender worries you cannot cover the loan payment if you hit a rough patch. Build up 6 to 12 months of loan payments in a savings account before you explore.

Frequently Asked Questions

Can I get a land loan if I have bad credit?

Most lenders require a credit score of at least 680, and many want 700 or higher. If your score is below 680, you will likely be declined by traditional lenders. Some specialized lenders will work with scores as low as 620, but they charge 2 to 4 percentage points higher interest and require 40 to 50 percent down. Consider waiting 6 to 12 months, paying down debt, and making on-time payments to improve your score before you explore.

What is the difference between a land loan and a construction loan?

A land loan finances the purchase of the land only. A construction loan finances both the land and the building of a house or structure on it. Construction loans are easier to get because the lender can see the finished product and its value. If you plan to build, ask your lender whether they offer a combined land-and-construction loan; it is usually faster and cheaper than getting two separate loans.

How long does a land loan last?

Land loans typically have terms of 5, 10, 15, or 20 years. A few lenders offer 30-year terms, but they charge more. Shorter terms mean higher monthly payments but lower total interest. If you plan to build within a few years, a 10-year term is common. If you are holding the land as an investment, a 15 or 20-year term spreads the payment out.

Do I need a survey before I explore for a land loan?

Not always, but having one helps. A survey costs $300 to $1,500 depending on the size and complexity of the land. If the land has never been surveyed or if the title is unclear, the lender will require one. If a survey already exists and is recent, the lender may accept it. Ask the lender upfront whether they require a new survey or will accept an existing one.

What happens if I cannot pay the land loan?

If you miss payments, the lender will eventually foreclose and take the land back. The process varies by state but typically takes 3 to 6 months. Once the lender owns the land, they sell it to recover what you owe. If the sale price is less than what you owe, you may be liable for the difference (called a deficiency), depending on your state's laws. Contact your lender when ready if you cannot make a payment; some will work with you on a temporary forbearance or loan modification.