Buying land is a big step, and for many, it’s the beginning of a dream home or long-term investment. But financing land works differently than taking out a traditional mortgage. In this article, we’ll explain how land loans work and what to expect during the application process so you can purchase property with confidence.
What Is a Land Loan?
A land loan is a type of financing used to purchase vacant or undeveloped property. Unlike a construction loan or a conventional mortgage, a land loan is specifically designed to help borrowers acquire land, whether to build on right away or at a later date. A loan for land purchase often comes with different terms and requirements than traditional home loans.
Land generally falls into three different categories:
- Raw Land is completely undeveloped. It lacks utilities like water and electricity and may require clearing, utility installation, and access roads. Raw land is often the most affordable but also the most labor-intensive before building is possible.
- Improved land has been cleared, tested, and connected to utilities. It’s ready for building and usually the most expensive option.
- Unimproved land falls somewhere in between. It may be cleared but still needs utility access or minor improvements before construction. Its cost typically falls somewhere between raw and improved plots.
Financing land is common, though some programs may have restrictions based on zoning, land type, acreage, or intended use. Your lender can help determine whether your desired property qualifies for a land loan.
What To Know Before You Apply
Before completing your land loan application, it's important to understand what most lenders expect. Land loans typically require a larger down payment than a traditional mortgage, often between 25% and 40% of the purchase price. The exact amount may depend on the land type, acreage, and your financial profile.
Some Land loans also come with additional considerations. Because land usually lacks improvements or structures, lenders view it as a higher-risk investment. As a result, borrowers may encounter:
- Higher down payments
- Stricter credit requirements
- Shorter loan terms
Still, some lenders, especially local credit unions, may offer greater flexibility. They often have a better understanding of the regional market and may be more willing to work with borrowers on customized terms.
What Makes Some Land Loans More Flexible Than Others?
Not all land loans are created equal. Certain lenders may offer features that make the process easier, such as:
- Flexible construction timelines
- Competitive rates
- Local decision-making and personalized guidance
These options can make a difference, especially if you’re planning to build in stages or want the freedom to move at your own pace.
How To Get a Land Loan
A land loan application is similar to other types of loans. You’ll need to provide standard financial documentation, such as:
- Proof of income
- Tax returns
- Bank statements
- Details about any existing debt
Here’s a general overview of how to get a land loan:
- Choose a lender
- Gather documentation
- Complete and submit your land loan application
After your application is submitted, the lender will review your financial information, assess the property, and order an appraisal. They’ll also consider factors like your credit score, the land category (raw, unimproved, improved), and your intended use for the property.
Whether you're planning to build soon or simply invest in a parcel for future use, clearly communicating your goals can help strengthen your application.
A land loan can be a practical way to secure property and plan for future development, but it helps to understand how the process works before you apply. From documentation to down payments, being prepared can help you buy the property that’s right for you.
If you’re considering buying land , Heritage Family Credit Union offers land and construction loans with competitive rates and flexible features designed to support your goals.
Connect with a local lender today to learn more or begin your application.