Yes, you can finance land, but the terms are tougher than a standard home mortgage. Because raw acreage has no building a lender can quickly resell after a default, expect a down payment of 20% to 50%, a repayment period of 5 to 15 years, and an interest rate several points above conventional mortgage rates. Your options include local bank and credit union land loans, USDA rural housing and farm loans, SBA 504 loans for business use, seller financing, and construction-to-permanent loans that roll the land purchase into a future home build.
How the Type of Land Changes Your Terms
Lenders sort parcels into three buckets, and which bucket yours falls into drives the down payment, the rate, and whether you can get a loan at all.
- Raw land is completely undeveloped: no road access, no utilities, no infrastructure. It is the hardest category to finance because the lender has little to recover on. Down payments of 35% to 50% are common, and rates sit at the top of the land-loan range.
- Unimproved land has some basic features, like a gravel road or a drilled well, but no full utility hookups or building permits. Down payments typically run 20% to 35%.
- Improved land already has access to public roads, electricity, water, and sewer or an approved septic system. Lenders treat these as the lowest-risk land loans. Down payments start around 20%, and rates are the most competitive of the three.
The gap between raw and improved land is not only about the loan. If you buy raw, you are also signing up for utility connections, road work, and regulatory approvals before you can build.
What Lenders Expect From You
Most land lenders ask for at least 20% down, and up to 50% on raw parcels. That is well above the 3% to 5% minimums common on conventional home mortgages. The exact figure depends on the land type, your financial profile, and the lender’s own appetite for risk.
Credit standards are higher too. Minimums tend to start in the upper 600s, and a score of 700 or above meaningfully improves both your odds and your rate. Lenders also lean hard on your debt-to-income ratio, since vacant land produces no rental income to offset the payment.
Interest rates on land loans generally run 4% to 10%. Raw land sits at the top of that range, improved land at the bottom, and unimproved land somewhere between.
Repayment is shorter than a conventional mortgage. Where a home loan stretches 15 to 30 years, many land loans run 5 to 15. Some include a balloon payment, a large lump sum due at the end of the term after years of smaller monthly payments. If you cannot pay the balloon when it comes due, you will need to refinance or sell. Before signing, ask the lender in plain terms whether the loan fully amortizes or ends in a balloon.1Consumer Financial Protection Bureau. What Is a Balloon Payment? When Is One Allowed?
Where to Get a Land Loan
Local Banks and Credit Unions
Community banks and credit unions are among the most common sources for land financing. They keep these loans on their own books rather than selling them off, which gives them room to approve deals a national lender would reject. A banker who knows the area and the property can make a real difference in the terms you are offered.
USDA Rural Housing and Farm Loans
If you plan to build a modest home in a rural area, the USDA’s Section 502 Direct Loan program can finance the building site. The loan has to include funds to construct a dwelling on the site, and the finished home’s market value cannot exceed the program’s loan limit for your area.2eCFR. 7 CFR Part 3550 – Direct Single Family Housing Loans and Grants
For agricultural buyers, the Farm Service Agency offers Farm Ownership Loans that can finance farmland purchases. Regular and joint-financing versions provide up to 100% financing. The Down Payment option, available to beginning farmers and to minority and women applicants, requires a cash down payment of just 5% of the purchase price.3Farm Service Agency. Farm Ownership Loans
SBA 504 Loans for Business Use
If the land is for a business, say a warehouse site or a future retail location, the Small Business Administration’s 504 program can help. A 504 loan covers land purchases up to $5.5 million, but the property cannot be used for speculation or passive investment. Your company must operate as a for-profit business, have a tangible net worth below $20 million, and show average net income under $6.5 million after federal taxes over the two years before applying. Applications go through a local Certified Development Company.4U.S. Small Business Administration. 504 Loans
Seller Financing
In a seller-financed deal, the person selling the land acts as the lender. You sign a promissory note and a deed of trust directly with the seller, and banks never enter the picture. This is especially common for rural or raw parcels that institutional lenders will not touch. Rate, down payment, and schedule are all negotiable. The tradeoff is less regulatory protection. No underwriter is checking that the terms are sustainable for you, so have an attorney review any seller-financed agreement before you sign.
Construction-to-Permanent Loans
If your goal is to buy land and build on it, a construction-to-permanent loan combines both steps into a single closing. Instead of a separate land loan now and a construction loan later, you finance the land purchase, the build, and the eventual permanent mortgage all at once.
The FHA’s Construction-to-Permanent program wraps the lot purchase, construction financing, and long-term mortgage into one loan closed before building begins. You must either already own the land or buy it at closing. Down payments start at 3.5% of the total project cost, credit minimums go as low as 620, and debt-to-income ratios up to 50% are allowed. The property must be a single-family primary residence, and you must work with a licensed general contractor. Lenders often require a 5% to 10% contingency reserve for unexpected construction costs.5HUD. Mortgagee Letter 2019-08 – Construction to Permanent Program
Eligible veterans and active-duty service members can use a VA-backed purchase loan to build a new home, including the cost of the lot. VA loans offer the possibility of zero down payment up to the county lending limit. Finding a lender that writes VA construction loans is harder than finding one for a standard VA purchase, and standalone land purchases without a construction plan are generally not covered.6Veterans Affairs. Purchase Loan
Costs Beyond the Purchase Price
The sticker price is only part of what you will spend, and lenders look at the full picture when deciding whether the project makes financial sense. If the parcel is not build-ready, the following can add tens of thousands before you break ground.
- Utility connections. Running electricity to a remote site runs roughly $2,500 to $12,500 depending on distance and whether the line is buried. A well and septic system can add $6,000 to $20,000 or more. A municipal water hookup runs $1,000 to $6,000, and a sewer hookup $1,600 to $10,900.
- Land survey. A professional boundary survey, which nearly every lender requires, typically costs $900 to $2,000 for a standard residential parcel. Large tracts, heavily wooded sites, or an ALTA survey push the price well above that.
- Percolation test. Without a sewer connection, you need a perc test to confirm the soil can support a septic system. Costs run from about $300 for a single hand-dug test hole to $3,000 for machine-dug tests on larger lots. A failed perc can make a property unbuildable, so many buyers add a perc contingency to the purchase agreement.
- Land clearing. Removing trees, brush, and debris to prepare a building pad runs roughly $1,000 to $12,000 per acre depending on vegetation, soil, and regional labor rates.
- Liability insurance. Even before you build, you face potential liability if someone is hurt on the property. Basic coverage for a small lot can run $150 to $300 per year; larger tracts in wildfire or steep-terrain areas can cost $900 to $1,800 annually.
Walking into the application with written estimates from contractors and utility companies strengthens your case.
Zoning and Environmental Due Diligence
Before you commit, confirm that local zoning allows the use you have in mind. Municipalities divide land into districts, residential, commercial, industrial, and agricultural, and each has its own rules about what you can build, how tall it can be, and how close to the property line structures may sit. A single-family home in a low-density residential zone is often permitted without special approval, but converting agricultural land to commercial use, or building at higher density, usually requires a variance or rezoning. Both take time and can be denied.
Wetlands add a federal layer. Section 404 of the Clean Water Act requires a permit before you place fill material into wetlands or other protected waters. No permit will issue if a less damaging alternative exists or if the project would significantly degrade the waterway. Small impacts may fit under a general permit; significant development triggers an individual permit reviewed by the U.S. Army Corps of Engineers, a process that can take months and require you to offset unavoidable damage.7US EPA. Permit Program Under CWA Section 404
Many lenders also require a Phase I Environmental Site Assessment before approving a land loan. The assessment reviews the property’s history, includes a physical inspection, and flags potential contamination from prior industrial or agricultural use. A Phase I helps both the lender and the buyer qualify for liability protections under federal environmental cleanup law. Without one, you could inherit responsibility for someone else’s pollution.
How the Application Moves to Closing
Most land lenders use Fannie Mae’s Uniform Residential Loan Application (Form 1003), the same form used for home mortgages. It asks for your income, employment history, bank and investment accounts, outstanding debts, and the value of any real estate you already own.8Fannie Mae. Uniform Residential Loan Application (Form 1003) Alongside the form, prepare a land use plan that spells out what you intend to do with the property, your timeline, and the results of any soil tests, perc tests, or zoning inquiries you have already completed. Lenders use the plan to judge whether the finished project will support the loan.
Once the package is in, the underwriter verifies income, reviews your assets, and evaluates the feasibility of your plan. The lender also commissions a specialized land appraisal. Unlike a home appraisal, which compares your house to similar houses nearby, a land appraisal relies on recent sales of comparable parcels. In rural markets, comparable sales can be scarce, which slows the process.
A title company then searches county records to confirm the property is free of liens, unpaid taxes, competing ownership claims, and deed restrictions that could block development. If the title is clear, the lender issues a commitment letter spelling out the final loan amount, rate, repayment schedule, and any conditions you must meet before closing.
At closing you sign the promissory note and the mortgage or deed of trust. Closing costs typically include an origination fee of 0.5% to 1.5% of the loan amount, title insurance, recording fees, and any required escrow deposits. Once the funds disburse and the deed is recorded at the county recorder’s office, you own the land.