How to Finance Land
Buying land is a dream for many, whether it’s for building a future home, starting a farm, or simply investing. But one of the biggest hurdles in purchasing land is figuring out how to finance it. Unlike a house or commercial building, raw land doesn’t come with built-in collateral. That makes lenders more cautious—since undeveloped land is harder to sell if the borrower defaults, the risk is higher.
The good news? Once you understand the requirements and available loan programs, financing land becomes much less intimidating. This guide breaks down what lenders look for in a land loan and explores the most common land financing options so you can choose the path that works best for you.
What Lenders Look for in a Land Loan
Getting approved for a land loan is often trickier than qualifying for a mortgage, but proper preparation can improve your chances. Here are key factors lenders typically review:
Debt-to-Income Ratio (DTI): Ideally between 30–40%.
Credit Score: A score of 650 or higher is considered competitive.
Down Payment: Depending on the land type, you may need 15–50% upfront. Raw land usually requires the largest down payment.
Stable Income: Lenders prefer consistent income streams over commission-based earnings.
Collateral: You may need to pledge another property since land alone is risky for banks.
Intended Use: If you plan to build soon, lenders see less risk. A clear development plan makes approval easier.
How Land Financing Works
Financing land is not the same as financing a house. Expect higher interest rates and shorter loan terms. Before applying, research different lenders and loan types to find the best match for your situation.
1. Bank or Credit Union Land Loans
Not all banks offer land loans, but some do—especially for residential lots where you intend to build. Examples of lenders that provide land mortgage options include:
American Farm Mortgage & Financial Services
Bank First
Clear Mountain Bank
Loan Star Ag Credit
Old National Bank
2. Specialty Agricultural Lenders
If you’re purchasing farmland, specialized agricultural lenders may offer more flexible terms than traditional banks. These lenders understand the unique needs of farming operations. Options include:
AgAmerica Lending
American AgCredit
Farm Credit Services of America
Farmers Business Network
3. Government Land Loan Programs
Government-backed loans can make financing more affordable, especially for rural and agricultural land. Popular programs include:
FHA Construction Loans – Covers both the land and construction costs.
USDA Farm Ownership Loans – Up to $600,000 for purchasing or expanding farmland.
USDA Rural Housing Site Loans – For buying land to build a single-family home in rural areas.
VA Purchase Loans – Available to veterans, often with no down payment, but building must begin right away.
4. Seller Financing
If traditional lenders won’t approve your application, seller financing may be an option. In this case, the property owner becomes the lender, and repayment terms are negotiated directly. While flexible, seller financing often comes with higher interest rates and larger down payments.
5. Personal Loans for Land
Some buyers use personal loans to purchase smaller plots of land. While these loans usually cap at $45,000, they don’t require collateral and often fund quickly. However, interest rates tend to be higher, and repayment terms are shorter.
Conclusion
Financing land can feel overwhelming, but with the right planning and knowledge of your options, it’s completely achievable. Before applying, make sure you:
Review your income, credit score, and debt-to-income ratio.
Clarify how you’ll use the land (build, farm, invest, etc.).
Decide if you’re willing to use other property as collateral.
By comparing land loan options, seller financing, government programs, and personal loans, you can find the best strategy to make your landownership dreams a reality.
