Getting a Land Loan │ How to Buy Land

By Jennifer Tucker
September 26, 2022 | 11 Min. Read

If you spotted a sign on an open lot that says, “hunting land for sale,” or you’ve been tempted to search online for “acreage for sale near me,” you may have visions of owning wide open space full of potential. But before you take the plunge and buy land, there are a few things to consider about financing land.

You might assume that getting a land loan is a lot like applying for any other type of loan. There are a lot of similarities, but there are also a few differences that make financing property more complex. Before you apply for a loan to buy land, it’s important to understand:

Once you’ve done your research, you can be on your way to owning property where you can raise your family, raise your crops, or raise the dust with your ATV.

You’ve found the perfect plot of land, and now it’s time to claim it. But there are a lot of things to think about when you’re buying land and searching for a loan to finance it. Whether you’re looking at a residential lot, hunting or recreational land, or large acreage, it’s important to understand the steps on the path to ownership.

When you’re ready to buy land, you’ll notice many similarities between applying for a land loan and applying for a traditional mortgage. However, financing property is a little more complex than other types of lending. When financing a land loan, there are more considerations for both the borrower and the lender.

Here’s an overview of the most important things to consider when you’re thinking about buying land:

Before you buy land, a lender will typically require a boundary survey. When you get a boundary survey, a professional land surveyor will locate and verify each corner of the lot and place markers to define the property lines. The surveyor’s assessment will be included in the paperwork you present to the lender when applying for a loan.  

Before applying for a loan, you’ll also want to check on zoning and land use restrictions. The local planning department can offer insights about what’s in store for the area where your land is located. This will help you understand development that could help or hurt property values in the future. You’ll also learn if there are any restrictions related to how you can use the land you’ve set your sights on.

Depending on how you plan to use the land, it will be important to know whether there is access to utilities like water, sewer, electricity, and cable hookups. This type of access is especially important when looking at a lot on which to build a home. Similarly, a lot with readily available access to a public road will save you hassle, time, and money.

Most borrowers buying land have a good idea of how they plan to use the property. Lenders want to understand your intended use of the land because it is directly linked to their risk exposure, and therefore, it influences the terms of your land loan, including down payment and interest rate.

Here are the three most common plans for land use and how lenders view the associated risk when making loan decisions:

Some property buyers plan to build on their land immediately. In this case, you’re usually in search of a residential lot on improved land that has access to roads and utilities. Building immediately—especially on ready-to-build land—is usually viewed by lenders as less risky and may increase their willingness to make a loan.

Some property buyers have longer-term plans for the use of their land and intend to build later. In this case, you may be looking at land that is not yet ready for development, or land with improvements needed. Lenders typically associate more risk with land purchased for future development because any number of uncertainties may prevent or delay plans for future development.

Some property buyers have no immediate plans for the use of the land and are buying with speculation that it will be a good investment. For example, you might anticipate future development nearby that could increase property values. Because of the uncertainty that creates increased risk, lenders usually look less favorably at financing with this type of speculation in mind.

Buying property and financing land comes with a unique set of challenges for borrowers. With all the factors to consider, how do you know if a land loan is right for you? Before you decide to buy land and get a loan, weigh the pros and cons.

A land loan (sometimes called a lot loan) allows you to finance the purchase of a plot or tract of land. You may want to buy land to build a home, for hunting or recreational use, for farming, or for other uses. Your intended use of the land will make a difference in the type of land loan you need.

There are three common types of land loans: raw land loans, unimproved land loans, and improved land loans.

Raw land is undeveloped land with no existing utilities or access to roads. While raw land prices are usually less than developed land, raw land loans often have higher interest rates and require more significant down payments. If you want to purchase raw land, you need to create a detailed plan for developing the land to demonstrate to lenders that you’re committed to the project.

Unimproved land is similar to raw land but may be more developed with some access to utilities and other features. Interest rates and down payment requirements for unimproved land loans are sometimes less than raw land loans but still commonly higher than other types of loans. As with raw land, it can be helpful to present lenders with a detailed plan for land development or improvements.

Improved land (sometimes called ready-to-build land) typically has built-in access to roads and utilities. It is the most developed type of land, making it more expensive to purchase. However, interest rates and down payment requirements for improved land loans are often lower than for raw or unimproved land loans.

A land loan is sometimes confused with a construction loan. A land loan typically offers a longer term and is a good choice for buyers who aren’t looking to build or develop the land immediately. A construction loan is a short-term loan and is the right choice for people who plan to build on the land immediately.

The qualifications for a land loan are similar to the qualifications for other types of financing. Lenders typically consider things like your credit score, debt-to-income ratio, and the amount of your down payment. However, land loans come with unique challenges for borrowers.

Each type of land loan comes with its own requirements and qualifications that borrowers must meet. The general factors that lenders take into consideration when you apply for a land loan include:

A simple loan calculator can help you determine the cost of a loan and decide what you can afford. A land loan calculator will compute your monthly payments and total interest based on the purchase price, down payment, interest rate, and the number of monthly payments.

Marine Credit Union offers a variety of free budgeting and financial planning tools to help you on your lending journey, including a Debt-to-Income Calculator, a Down Payment Calculator, and a Loan Amount Calculator.

The rate and term of your land loan will affect how much you end up paying in the long run. Lenders commonly offer one of two types of loans: a balloon loan or a fixed-rate loan. A balloon loan usually offers a lower interest rate for a short term, but at the end of the term, the loan balance is due all at once. A fixed-rate loan allows you to lock in an interest rate for a long term, usually 20 to 30 years. This offers you more predictable payments.

The basic steps in applying for a land loan are similar to other financing types. First, you will want to find a lender that offers the type of land loan you need based on your intended use of the land. Then, you will submit a loan application. Your application will be evaluated based on things like your credit score, debt-to-income ratio, and the amount of your down payment. Once the lender approves your application, you’ll agree to the loan terms and make a down payment. After that, you’ll be responsible for paying the loan back at the determined interest rate.

As with other types of loans, you can also expect to incur closing costs when you get a land loan. These out-of-pocket fees may include origination fees, stock fees, and fees for title work, survey, appraisal, and perc test.

Lenders vary in the types of land loans they offer. Different lenders may make loans for small acreage and residential lots, large acreage tracts, timberland, farmland, hunting and recreational tracts, land improvements, and construction.

It’s common for local banks and credit unions to be more likely to offer land loans than large banks. They also may have more competitive rates and better terms due to their local knowledge and understanding of the area.

You’ve done your research, understand the requirements, and are ready to own your plot of land. Now you’re ready to find the right lender. There are a few important things to consider in your search for a bank or credit union and the right type of land loan for your needs:

While a larger down payment can help reduce your monthly payments, a low down payment requirement can get you on your way to land ownership faster. At Marine Credit Union, you’re only required to put 10% down on your land to qualify for a loan.

The term of your land loan will affect how much you pay and how long you finance your property. Marine Credit Union offers financing of up to 30 years on land loans.

The interest rate of your land loan will determine how much you pay for your property in the long run. Look for low, competitive rates to help you achieve more manageable payments.

When buying land, it’s important to work with lending staff who understand and specialize in financing land for all its various uses. Marine Credit Union lenders are knowledgeable about land loans and focused on finding the right loan to fit your needs.

Buying land is a bit more complex than applying for a traditional mortgage. This is due to the requirements that come along with purchasing land, like checking zoning and land use restrictions, surveying boundaries, and checking access to utilities and roads.

The first and most important step when you want to get a loan to buy land is to find the right lender.  Not all lenders offer land loans and those who do vary in the types of loans they offer. A local bank or credit union is often the best fit if you want to purchase and develop land in your community.

When you’ve found the right lender and are ready to apply for a land loan, your next step will be understanding the qualifications and requirements and gathering the necessary paperwork.

Each type of land loan comes with its own requirements, but the general factors lenders take into consideration include:

Different goals call for different types of loans. When you’re looking for a land loan, we’ll find the right solution to meet your unique needs.

We don’t think anything should stand in the way of your dreams of land ownership. If you’re ready to purchase land, we’re ready to discover a way to make it possible.

Some lenders have rigid lending guidelines and qualifications that are tough to meet. If you’ve been told “no,” we can help you find the path to “yes.”