Understanding Land Loans: Types and Requirements

Revised By Jennifer Tucker

April 28, 2025

3 Min. Read

Land Loans: What You Need to Know

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 a wide open space full of potential. But before you take the plunge and buy land, there are a few things to consider when financing land.

Buying land isn’t exactly like applying for a mortgage or personal loan. While there are a lot of similarities, land loans come with unique requirements that make financing property more complex. Before you apply for a loan to buy land, it’s important to understand:

• The type of land loan you need.
• Property check requirements.
• How you plan to use the land.

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.

What is a Land Loan?

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.

Types of Land Loans

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

Raw 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 Loan

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 loan

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.

Property Check Requirements

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

Boundaries

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.

Zoning

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.

Access

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 you plan 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.

Land Use

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

Build Immediately

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.

Build Later

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.

Speculative Investment

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.

Think you’re ready to take ownership of a new property? Learn more about the Pros and Cons of Land Loans and What to Look for in a Land Loan Lender.