Buying a vacant lot or acreage often requires a land loan rather than a traditional mortgage. Because there is no home as collateral, lenders view land differently, and the terms reflect that. Here is how land financing works.
Why land loans differ from a mortgage
A mortgage is secured by a house; a land loan is secured by undeveloped property, which lenders consider higher risk. As a result, land loans often come with shorter terms, larger down payments, and different rates than a home loan. The exact terms depend on the land and your plans for it.
Types of land financing
- Raw land loans: For undeveloped land with no utilities or road access. These are the hardest to finance and usually require the largest down payment.
- Improved (or lot) land loans: For land with utilities and access already in place. Terms are generally more favorable than raw land.
- Construction-to-permanent: If you plan to build soon, a loan that converts to a mortgage once construction is complete may fit better.
What lenders look at
Lenders typically weigh your credit profile, your down payment, the land's location and zoning, and what you intend to do with it. A clear building plan can strengthen your case.
What to compare
Compare the APR, term, down payment requirement, and total cost across offers. Explore finance categories and compare advertised offers to find a fit.
Frequently asked questions
Are land loans harder to get than mortgages?
Often, yes. Undeveloped land is seen as higher risk, so land loans tend to require larger down payments and carry shorter terms than a home mortgage.
What is the difference between raw and improved land?
Raw land has no utilities or access and is hardest to finance. Improved land already has utilities and road access, so it usually earns more favorable terms.
Can I get one loan to buy land and build?
A construction-to-permanent loan can cover building and convert to a mortgage when the home is finished. Compare it against a separate land loan plus construction loan.
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