Reviewed by the Editorial Team · Updated July 10, 2026 · 6 min read
A land loan finances a vacant lot with no home to serve as collateral, so lenders charge higher rates, shorter terms and down payments that often run 20-50%. Improved lots with utilities and road access finance far more easily than raw, unimproved acreage.
Key takeaways
A land loan finances a vacant lot with no home to serve as collateral, so lenders charge higher rates and require larger down payments than a home mortgage.
Down payments often run 20-50% of the purchase price, with terms shorter than a typical mortgage, commonly 5-15 years.
Improved lots with utilities and road access finance far more easily than raw, unimproved acreage, which many lenders avoid altogether.
It suits buyers securing land now with plans to build later, rather than those ready to start construction immediately.
Down payment
Often 20–50%
Rates
Higher than a home mortgage
Easiest to finance
Improved lots (utilities, road access)
Best for
Buyers not building right away
How a land loan works
A land loan finances a vacant parcel with nothing built on it, so the lender has no structure to fall back on if you default. That missing collateral is why terms look nothing like a typical home mortgage.
Improved lots have utilities, road access and are ready to build on
Unimproved (raw) land lacks utilities and access, and is harder to finance
Terms usually run shorter than a 30-year mortgage, often 10-15 years
Local banks and credit unions are the most common lenders
USDA also backs land loans in eligible rural areas, and some sellers finance the purchase directly through a land contract.
Why land costs more to finance
Expect a bigger down payment than any home loan — often 20% for an improved lot and up to 50% for raw acreage with no utilities. Rates typically run higher too, reflecting the added risk to the lender.
Shorter loan terms mean higher monthly payments relative to the loan size, even before accounting for the rate premium.
THE PLANNING QUESTION
If you intend to start building within a year or so, a construction loan may serve you better than a standalone land loan — ask a lender to compare both before you buy.
What lenders require to approve a land loan
Beyond a larger down payment, lenders want a clear plan for the land and proof you can carry the loan without relying on the property itself.
Strong credit score, well above home-loan minimums
A survey and clear title on the parcel
A stated purpose — building, farming, investment
Verified income to cover payments with no offset
Who a land loan fits
This loan suits buyers who want to secure a specific parcel now but aren't ready to build immediately. It's not the right tool if construction is imminent.
Buyers securing a lot well before they're ready to build
Recreational or investment buyers with no near-term construction plans
Buyers targeting an improved lot with utilities already in place
Anyone comfortable with a larger down payment and shorter term
If you'll break ground soon, look at a construction-to-permanent loan instead — it can fold the land purchase into the same financing as the build.
Land Loans: pros and cons
Pros
Secures the lot before someone else buys it
Local/community banks often keep loans in-house
Improved lots qualify for near-standard terms
Seller financing sometimes available on raw land
Cons
Down payments often 20-50% of price
Shorter repayment terms, often 5-15 years
Higher interest rates than a home mortgage
Raw, unimproved land is hardest to finance
Requirements at a glance
Down payment typically 20-50%, higher for raw or rural land
Shorter repayment terms, often 10-15 years instead of 30
Survey, boundary and zoning documentation for the parcel
Stronger credit and lower debt-to-income than a home mortgage typically needs
A clear intended use for the land in the loan application
Local bank, credit union, USDA or seller financing as the likely source
Is it harder to get a loan for land than for a home?
Yes — land loans carry higher rates, bigger down payments and shorter terms because there's no home to serve as collateral. Improved lots with utilities and road access are the easiest to finance; raw, unimproved acreage is the hardest.
What's the difference between an improved lot and raw land?
An improved lot already has utilities and road access and is ready to build on, which makes it easier and cheaper to finance. Raw land lacks that infrastructure, so lenders see it as riskier and price the loan accordingly.
Should I get a land loan or a construction loan?
If you're building soon, a construction loan is usually the better tool — it can finance the land and the build together with one closing.
A standalone land loan makes more sense if you're securing the parcel well before you're ready to build.
What loan is best for land?
For improved lots with road access and utilities, a standard bank or credit union land loan usually works best. Raw, unimproved acreage often needs a local or community lender or, for agricultural land, a USDA Farm Service Agency loan.
If you plan to build soon, a construction-to-permanent loan can save on closing costs.
Do you have to put 20% down on a land loan?
Not necessarily, but expect to put down more than you would on a home. Improved lots with utilities can sometimes finance with 20-25% down, while raw, unimproved land often requires 30-50% down because it's harder for a lender to resell if you default.
Can you get 100% financing on a land loan?
Rarely through a conventional lender — land loans almost always require a down payment because vacant land is harder to resell than a home.
The closest to 100% financing usually comes from seller-financed deals or USDA Farm Service Agency loans for qualifying agricultural land, not typical land purchases.
Are land loan rates higher than mortgage rates?
Yes — land loans typically carry higher interest rates than a mortgage on a finished home, since vacant land is riskier collateral for a lender.
Rates climb further for raw, unimproved acreage compared with improved lots that already have utilities and road access.
This guide is general information, not a lending decision. Program rules and dollar limits change — verify current figures with a licensed lender and confirm licensing at NMLS Consumer Access. See all loan types.
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