Land Financing Options 2026: Complete Guide to Raw Land Loans

You found your dream piece of land. You're ready to buy and build your custom home.

Then you call your mortgage lender: "We don't finance raw land."

You try another bank: "We need 40% down and charge 10% interest."

Suddenly you realize: Financing raw land is completely different from buying a house.

Traditional mortgages don't apply. Down payment requirements are steep. Interest rates are higher. And many lenders won't touch raw land at all.

But financing IS available - you just need to know where to look and what to expect.

This guide covers every type of land financing available, from traditional land loans to construction financing, seller financing, and creative alternatives.

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🏦 Types of Land Loans

1. Raw Land Loans (Unimproved Land)

What it is: Financing for land with no utilities, no road access, no improvements.

Typical terms:

• Down payment: 30-50%
• Interest rate: 8-12% APR
• Loan term: 10-20 years
• Maximum LTV: 50-70%

Requirements:

• Excellent credit (typically 720+)
• Low debt-to-income ratio (under 40%)
• Significant cash reserves
• Clear development plan

Why it's expensive:

• Highest risk for lenders
• No improvements = harder to sell if foreclosed
• No income generated from land
• Difficult to appraise

Best for:

• Long-term land investment
• Future development (5+ years out)
• Recreational property
• When you have significant down payment

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2. Improved Land Loans (Land with Utilities)

What it is: Financing for land that has utilities, road access, and is ready to build.

Typical terms:

• Down payment: 20-30%
• Interest rate: 6-9% APR
• Loan term: 15-30 years
• Maximum LTV: 70-80%

Requirements:

• Good credit (typically 680+)
• Reasonable debt-to-income ratio
• Proof land is buildable
• Perc test passed (if septic needed)

What qualifies as "improved":

• ✅ Road access (paved or maintained gravel)
• ✅ Electric at property line
• ✅ Water available (well or municipal)
• ✅ Septic approved OR sewer available
• ✅ Building permits possible

Why it's better:

• Lower risk for lenders
• Easier to appraise (comparable improved lots)
• Clear development potential
• Can build immediately

Best for:

• Near-term building plans (1-3 years)
• Turnkey building sites
• First-time land buyers

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3. Construction Loans (Build-Only)

What it is: Short-term loan to build a home on land you already own.

Typical terms:

• Down payment: 20-25% of total project cost
• Interest rate: 7-10% APR (variable during construction)
• Loan term: 6-12 months (construction period)
• Converts to: Permanent mortgage after completion

How it works:

1. You already own land (paid off or separate loan)
2. Lender approves construction budget
3. Funds released in draws as work progresses
4. Interest-only payments during construction
5. Converts to standard mortgage when complete

Requirements:

• Detailed construction budget
• Licensed contractor OR owner-builder approval
• Architectural plans and permits
• Progress inspections at each draw
• Cash reserves for overruns

Draw schedule (typical):

• Foundation completion: 15-20%
• Framing complete: 30-40%
• Mechanicals rough-in: 50-60%
• Interior finishes: 75-85%
• Final completion: 100%

Best for:

• You own land free and clear
• Have detailed building plans
• Experienced with construction
• Can manage interest-only payments

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4. Land-to-Construction Loans (One-Time Close)

What it is: Single loan that covers BOTH land purchase AND home construction.

Typical terms:

• Down payment: 20-30% of total (land + construction)
• Interest rate: 7-10% APR
• Loan term: Construction period + 15-30 year mortgage
• One closing: Lock rate at beginning

How it works:

1. Apply for combined land + construction financing
2. Close once on total amount
3. Lender releases land purchase funds first
4. Construction funds released in draws
5. Automatically converts to permanent mortgage

Requirements:

• Comprehensive project plan
• Construction timeline and budget
• Licensed contractor (usually required)
• Good credit (typically 680+)
• Significant down payment

Advantages:

• ✅ Lock interest rate upfront
• ✅ One closing = lower fees
• ✅ Simpler than separate loans
• ✅ Easier qualification process
• ✅ Can include development costs

Disadvantages:

• ❌ Higher rates than traditional mortgages
• ❌ Strict construction timeline requirements
• ❌ Large down payment needed
• ❌ Difficult to find lenders offering this

Best for:

• Buying land AND building immediately
• First-time builders who want simplicity
• Those who want rate certainty
• Projects with clear timelines

💡 This is often THE BEST option for most people buying raw land to build on.

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5. Construction-to-Permanent Loans (Two Closings)

What it is: Construction loan that converts to permanent mortgage, but requires two separate closings.

Typical terms:

• First closing (construction):

  • Down payment: 20-25%
  • Rate: 7-11% APR (variable)
  • Term: 6-12 months

• Second closing (permanent):

  • Rate: Current market rates
  • Term: 15-30 years
  • Refinance of construction loan

How it works:

1. Close on construction loan
2. Build home with draw schedule
3. Home completed and appraised
4. Refinance into permanent mortgage
5. Pay two sets of closing costs

Risk:

• 🚨 Interest rates could rise between closings
• 🚨 May not qualify for permanent loan if situation changes
• 🚨 Higher total closing costs

Best for:

• Experienced builders who can manage rate risk
• When one-time close loans unavailable
• Expecting rates to drop during construction

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💰 Down Payment Requirements Compared

Loan Type	Minimum Down	Typical Down	LTV Ratio
Raw land loan	30-50%	40-50%	50-70%
Improved land loan	20-30%	25-30%	70-80%
Construction loan	20-25%	20-25%	75-80%
Land-to-construction	20-30%	25-30%	70-80%
USDA land loan	0%*	0%*	100%*
VA land loan	0%*	0%*	100%*
Conventional mortgage	3-5%	5-20%	80-97%

*Only for qualified buyers in eligible areas

The reality: Expect to put down at least 25-30% for most land purchases with building plans.

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🏗️ Complete Example: Buying Land and Building

Let's look at the full financing for someone buying raw land and building a home.

Scenario: $500,000 Total Project

Breakdown:

• Land purchase: $100,000
• Site development: $50,000
• Home construction: $350,000
• Total project: $500,000

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Option 1: Land-to-Construction Loan (Best for Most)

Financing structure:

• Total loan amount: $375,000 (75% LTV)
• Down payment needed: $125,000 (25%)
• Interest rate: 8.5% APR
• Term: 12 months construction + 30 year mortgage

Cash flow during construction:

• Month 1: Pay $100K land + $25K site prep
• Months 2-12: Interest-only payments (~$2,650/month)
• Construction draws released as work completes
• Converts to permanent mortgage: $2,700/month

Total out-of-pocket:

• Down payment: $125,000
• Closing costs: $7,500
• Interest during construction: ~$26,500
• Total cash needed: ~$159,000

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Option 2: Separate Loans (More Complex)

Step 1: Buy land with land loan

• Land cost: $100,000
• Down payment (40%): $40,000
• Land loan: $60,000 @ 9.5% APR
• Payment: ~$630/month

Step 2: Get construction loan

• Construction + development: $400,000
• Down payment (25%): $100,000
• Construction loan: $300,000 @ 9% APR
• Interest-only during build: ~$2,250/month

Step 3: Refinance to permanent

• Pay off land loan ($60K) + construction loan ($300K)
• New mortgage: $360,000 @ 7.5% APR
• Payment: ~$2,515/month

Total out-of-pocket:

• Land down payment: $40,000
• Construction down payment: $100,000
• Land loan payments (12 months): $7,560
• Construction interest: $22,500
• Two sets closing costs: $12,000
• Total cash needed: ~$182,000

Why it's worse: Higher cash needs, more complex, rate risk

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Option 3: Pay Cash for Land, Finance Construction

Step 1: Buy land with cash

• Pay $100,000 cash for land
• Own land free and clear
• No monthly payment

Step 2: Site development

• Pay $50,000 cash for utilities/driveway
• Total invested: $150,000

Step 3: Construction loan

• Construction cost: $350,000
• Down payment (20%): $70,000
• Construction loan: $280,000 @ 8.5% APR
• Converts to mortgage: ~$2,155/month

Total out-of-pocket:

• Land: $100,000
• Site development: $50,000
• Construction down payment: $70,000
• Total cash needed: $220,000

Why you might choose this:

• ✅ Lower overall borrowing
• ✅ Easier qualification (land equity)
• ✅ More negotiating power on land
• ❌ Need much more cash upfront

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🏛️ Where to Get Land Financing

1. Local and Regional Banks

Best for: Raw land and construction loans

Why they're good:

• Know local market
• More flexible underwriting
• Relationship-based lending
• Will consider unique properties

Typical terms:

• Raw land: 30-40% down, 8-11% APR
• Construction: 20-25% down, 7-10% APR
• More willing to work with owner-builders

How to find:

• Community banks in rural areas
• Regional banks serving your county
• Agricultural lenders (Farm Credit)

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2. Credit Unions

Best for: Improved land, members with good credit

Why they're good:

• Member-focused (not profit-driven)
• Competitive rates
• Flexible terms
• Lower fees

Typical terms:

• Improved land: 20-30% down, 6-9% APR
• Often better rates than banks
• May offer land-to-construction

Requirements:

• Must be member
• Usually need local connection
• Good credit essential

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3. Farm Credit Services / USDA Lenders

Best for: Agricultural land, rural properties

Why they're good:

• Specialize in land loans
• Understand rural properties
• Longer terms available
• May finance larger acreage

Typical terms:

• 25-35% down
• 6-9% APR
• Up to 30 year terms
• Require agricultural use or intent

Special programs:

• USDA 502 Direct Loan (100% financing for qualified buyers)
• USDA 504 Loan (home repair/improvement)
• Must be in eligible rural area

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4. National Lenders Specializing in Land

Examples:

• Nationwide specialized land lenders
• Online land loan marketplaces
• REITs offering land financing

Why they're good:

• Streamlined application
• Fast approval process
• Clear requirements
• Handle nationwide

Typical terms:

• 20-40% down
• 7-11% APR
• Standardized underwriting
• May be more expensive

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5. Portfolio Lenders

What they are: Banks that keep loans in-house instead of selling them

Why they're good:

• Make their own rules
• More flexible qualification
• Consider unique situations
• Can do creative structures

Best for:

• Self-employed borrowers
• Unique properties
• Non-standard situations
• Owner-builders

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🎖️ Government-Backed Land Loans

USDA Loans (100% Financing Possible!)

USDA 502 Direct Loan:

• Down payment: 0% for qualified borrowers
• Interest rate: Subsidized (as low as 1% for very low income)
• Income limits: Apply (varies by area)
• Property: Must be in eligible rural area
• Use: Primary residence only

Requirements:

• Property in USDA-eligible area (surprisingly many are!)
• Income below area limits
• Cannot obtain conventional financing
• Must build/buy modest home (limits apply)

Check eligibility: USDA.gov/eligibility

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VA Loans (Veterans)

VA Land Loan:

• Down payment: 0% for qualified veterans
• Interest rate: Market rates (typically 6-8%)
• Property: Must build primary residence
• No PMI required

Requirements:

• Eligible veteran or active duty
• Land + construction combined
• Must build within reasonable time
• VA-approved builder may be required

Note: Not all VA lenders offer land loans - must find specialized VA construction lender

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🤝 Seller Financing (Owner Financing)

What it is: Property owner acts as the bank and finances your purchase directly.

Typical terms:

• Down payment: 10-30% (negotiable)
• Interest rate: 6-10% APR (negotiable)
• Loan term: 5-10 years with balloon payment
• Or: 15-30 year amortization

How it works:

1. Negotiate price and terms with seller
2. Make down payment
3. Monthly payments directly to seller
4. Deed held in escrow or seller retains until paid
5. Refinance or balloon payment at term end

Advantages:

• ✅ Easier qualification (seller decides)
• ✅ Flexible terms
• ✅ Lower closing costs
• ✅ Faster closing
• ✅ Less documentation required

Disadvantages:

• ❌ Shorter terms common (balloon payments)
• ❌ Seller may foreclose if you miss payments
• ❌ May not build equity if deed retained
• ❌ Harder to refinance later

Best for:

• Self-employed with hard-to-verify income
• Credit issues
• Unique properties banks won't finance
• Motivated sellers

Negotiate carefully:

• Get attorney to draft note and deed
• Record all documents with county
• Understand foreclosure terms
• Plan for balloon payment

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💳 Alternative Financing Options

1. Home Equity Loan/HELOC (If You Own Home)

Use equity from current home to buy land

Terms:

• 80-90% of home equity available
• Interest rates: 7-10% APR
• Flexible use of funds
• Tax deductible if used for improvements

Strategy:

• Tap home equity to buy land cash
• Build home with construction loan
• Refinance/pay off when done

Advantages:

• ✅ Lower rates than land loans
• ✅ Easier qualification
• ✅ Flexible terms
• ✅ Fast access to funds

Risks:

• 🚨 Your home is collateral
• 🚨 Could lose home if can't pay
• 🚨 Increase debt on current property

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2. 401(k) Loan

Borrow from your retirement account

Terms:

• Borrow up to 50% of vested balance (max $50,000)
• Interest rate: Typically prime + 1-2%
• Repay within 5 years
• No credit check required

Advantages:

• ✅ Easy approval
• ✅ Pay interest to yourself
• ✅ No tax penalty if repaid
• ✅ Quick access

Risks:

• 🚨 Must repay if you leave job
• 🚨 Lost investment growth
• 🚨 Taxable if not repaid
• 🚨 Reduce retirement savings

Use carefully: Only for down payment, not total purchase

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3. Personal Loans

Unsecured personal loans for land purchase

Terms:

• Borrow up to $100,000
• Interest rates: 8-20% APR
• Terms: 3-7 years
• No collateral required

Best for:

• Small land purchases
• Down payment assistance
• Short-term bridge financing

Limitations:

• ❌ High interest rates
• ❌ Lower loan amounts
• ❌ Shorter terms
• ❌ Impact debt-to-income ratio

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4. Partner/Joint Purchase

Buy land with partner or family member

Structures:

• Joint tenancy
• Tenants in common
• LLC ownership
• Partnership agreement

Advantages:

• ✅ Split down payment and costs
• ✅ Combined income for qualification
• ✅ Shared risk
• ✅ Larger purchase possible

Critical:

• Written agreement on ownership percentages
• Exit strategy if someone wants out
• Decision-making process
• What happens if someone dies

Get attorney to draft:

• Ownership agreement
• Buy-sell provisions
• Dispute resolution
• Property use terms

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📋 Qualification Requirements

What Lenders Look At

1. Credit Score

• Raw land: 720+ typically required
• Improved land: 680+ acceptable
• Construction: 680+ minimum
• Lower scores = higher rates/down payment

2. Debt-to-Income Ratio

• Maximum DTI: 40-45% for land loans
• Includes: All debt + projected land payment
• Construction: May include estimated mortgage payment

3. Cash Reserves

• Lenders want 6-12 months reserves
• Especially for construction loans
• Protects against cost overruns
• Shows financial stability

4. Income Documentation

• W-2 employees: 2 years tax returns + pay stubs
• Self-employed: 2 years business tax returns
• Must show stable/increasing income
• Gaps or declines require explanation

5. Down Payment Source

• Must be "seasoned" funds (in account 60+ days)
• Gift funds may be acceptable
• Recent deposits require documentation
• No borrowed down payment

6. Property Details (for land loans)

• Appraisal required
• Survey may be needed
• Perc test if septic required
• Zoning verification
• Building permit feasibility

7. Construction Plans (if building)

• Detailed architectural plans
• Itemized budget
• Contractor license and insurance
• Construction timeline
• Permits obtained or planned

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⚠️ Common Financing Mistakes

1. Assuming Regular Mortgage Rules Apply

The mistake: "I put 5% down on my house, so land should be the same"

The reality:

• Land requires 25-50% down
• Higher interest rates
• Shorter terms
• Much stricter qualification

The fix: Budget for larger down payment before shopping

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2. Not Getting Pre-Approved First

The mistake: Finding land, then looking for financing

The reality:

• Many lenders don't do land loans
• Terms vary dramatically
• Takes weeks to get approved
• May lose property while searching for financing

The fix: Get pre-approved BEFORE shopping for land

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3. Underestimating Total Costs

The mistake: Only budgeting for land purchase

The reality:

• Land is just the beginning
• Development costs: $50,000 - $150,000+
• Construction: $200,000 - $500,000+
• Need to finance ALL of it

The fix: Use land development calculator to estimate total project costs

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4. Choosing Wrong Loan Type

The mistake: Getting raw land loan when you plan to build immediately

The reality:

• Paying for land loan + construction loan = double costs
• Land-to-construction loan is better
• Saves money and complexity

The fix: Match loan type to your timeline and plans

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5. Ignoring Balloon Payments

The mistake: Focusing only on monthly payment

The reality:

• Many land loans have 5-10 year balloons
• $50,000 - $200,000 due at end of term
• Must refinance or pay off
• May not qualify to refinance

The fix: Plan for balloon payment or choose fully amortizing loan

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6. Not Reading Construction Loan Terms

The mistake: Assuming you can take your time building

The reality:

• Strict construction timelines (usually 12 months)
• Penalties for delays
• Must meet draw requirements
• Can default if not completed on time

The fix: Have realistic construction timeline before applying

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💡 Money-Saving Strategies

1. Improve Land Before Financing

Strategy:

• Buy land cash or with land loan
• Add utilities and perc test
• THEN refinance as improved land

Savings:

• Improved land = better loan terms
• Lower rates (2-3% difference)
• Higher LTV (borrow more)
• Can pull out cash from improvements

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2. Build Equity Through Sweat

Strategy:

• Buy land
• Do site work yourself
• Add value before construction financing
• Increased equity = better terms

Example:

• Buy land: $80,000
• DIY clearing/driveway: $5,000 cost (worth $20,000)
• Land now worth $100,000
• Finance construction with more equity

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3. Lock Rates at Right Time

For land-to-construction:

• Lock when rates are low
• Protects entire project
• Avoid refinance risk

For two-closing:

• Time construction during falling rate period
• Refinance at completion with lower rate
• Higher risk but potential savings

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4. Shop Rates Aggressively

Rate differences add up:

• 8% vs 10% on $200K land-construction loan
• Difference: $350/month
• Over 30 years: $126,000 more paid

Get quotes from:

• 3-5 local banks
• 2-3 credit unions
• National specialized lenders
• Farm credit if eligible

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✅ Land Financing Decision Tree

Start here: What's your situation?

I'm buying land to build on within 1-2 years

→ Best option: Land-to-construction loan (one-time close)

• Covers land purchase AND construction
• One closing, one rate lock
• Simplest process

Alternative: Buy land with cash/home equity, then construction loan

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I'm buying land to build on in 3-5+ years

→ Best option: Improved land loan (if utilities available)

• Better rates than raw land
• Pay down while planning
• Refinance to construction later

Alternative: Seller financing with balloon, refinance when ready to build

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I already own land, ready to build

→ Best option: Construction-to-permanent loan

• Finance only construction
• Leverage land equity
• Convert to mortgage when done

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I want to buy land as investment/recreation

→ Best option: Raw land loan OR seller financing

• Accept higher rates for no building requirement
• Or negotiate seller financing for flexibility

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🎯 Get Complete Project Financing Analysis

Land financing is complex, but knowing your total costs helps you get the right financing.

Our Land Development Cost Analyzer helps you:

✅ Calculate total project costs (land + development + construction)
✅ Determine financing needs based on realistic budgets
✅ Plan for down payments with full cost breakdown
✅ Understand cash flow during construction
✅ Make informed decisions on loan types

Analyze Your Complete Project Now →

Know your total costs. Get the right financing. Build your dream.

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🔗 Related Land Development Guides

Complete Overview:

• Complete Guide to Land Development Costs in 2026

Development Cost Details:

• Site Preparation and Clearing Costs
• Well Drilling Costs by State
• Septic System Requirements Guide
• Electric Hookup Costs

Land Buying Process:

• Road Access and Easements Guide
• Perc Test Failures: What to Do

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Final Thoughts: Financing Makes or Breaks Your Project

Raw land financing is nothing like buying a house.

The rules are different. The terms are worse. The down payments are huge.

But it IS possible - you just need to:

1. Understand your options - Land loan, construction loan, or combined
2. Match financing to timeline - Building soon? Get land-to-construction
3. Budget realistically - 25-30% down minimum, plan for ALL costs
4. Shop aggressively - Rates vary dramatically between lenders
5. Get pre-approved early - Before you start shopping for land

Most importantly: Know your TOTAL costs before getting financing.

That $100,000 piece of land might be a $500,000 total project when you add development and construction. Make sure you can finance the whole thing.

Get the right financing. Build your dream home.

Calculate Your Total Project Costs →

Smart financing starts with accurate budgeting.

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Last updated: November 2025. Loan terms, rates, and requirements vary by lender and are subject to change. Interest rates shown are estimates. Always consult multiple lenders and obtain written quotes. Financing availability depends on creditworthiness, income, property type, and other factors.