Financing Options for Buying Land

Getting financing for your land purchase is an exciting prospect. However, it can also be a bit overwhelming. If you’ve been following along in this series, you should have a good grasp on how to get the best price for land, and what kind of home you’re going to build. It’s especially important that you do your due diligence on the land before searching for financing. 

For purchasing raw land, you have several financing options to choose from. But before we dive into those, we’ll answer some common questions so you can go into the financing portion of your land purchase with all the relevant information.  

Is it Harder to Get a Loan for Land?

Getting a loan for land can be a bit more difficult than getting a loan for a house. This is because the lender uses the home for collateral, reducing their risk in the transaction. However, since we’re talking about buying raw land here, there’s only the land itself to use as collateral. And since land buyers aren’t nearly as common as home buyers, this creates a certain risk for the financier. 

That said, you still have options for getting a loan for land. Just be aware that you’ll likely need to have a large down payment, a good credit score, and a good debt-to-income ratio to get a loan from most places.  

Do Banks Finance Land Purchases?

Banks, also known as commercial lenders, do offer land loans. If you want to go with a commercial lender for your land purchase, you’ll probably want to approach local banks or credit unions near where your land is located. These lenders generally know the local land markets and have an interest in developing nearby land. 

Unfortunately, banks and credit unions aren’t always flexible when it comes to their loans. They have certain criteria they need to be met before they can approve the loan, and not everyone will meet that criteria. We’ll talk more about bank loan options for raw land below to give you more detail on when it’s best to approach a bank for a loan. 

What is the Best Way to Finance a Piece of Land?

The best way to finance a piece of land is seller financing. Also known as owner financing, this is an agreement between you and the seller of the land. Everything is negotiable because the owner isn’t like a bank. They may be willing to accept a lower interest rate, a lower down payment, or a longer loan term than commercial lenders. 

At Land Elevated, we own all our land, so we’re able to offer many financing options to our buyers. What we offer is a great example of an owner-financed seller. We’re flexible, working with all our customers to keep them happy and get them their dream property at an excellent price! Click here to see more about how Land Elevated works to get you your dream land!

Other Financing Options for Buying Land

Commercial lenders and owner-financing are far from the only ways to get financing for buying land. Let’s go over your options in-depth so you can decide which is right for you. 

Construction Loan

The type of loan you get for purchasing land depends on what your plan is for building. If you’re looking to build your dream home immediately — meaning you already have plans and just need to sign the paperwork before construction starts — then a construction loan may be a good way to go. 

While these loans won’t have terms as favorable as purchasing an already-built house, they do tend to have better terms than raw land loans. This is because you can present the lender with a plan to build right away, meaning you’ll be adding value to the property. This reduces the lender’s risk somewhat, which makes terms more favorable. 

Land or Lot Loans

If you’re not planning on building your home on the land right away, you will want to consider a land or lot loan. There are three main types of land loans to choose from:

• Improved Land Loan
• Unimproved Land Loan
• Raw Land Loan

Improved land already has access to water, electricity, gas, and access by road. These things will make the property more valuable, which in turn can help bring down interest rates from lenders.

Unimproved land may have road access and water, but no electricity or gas. These lots often have some amenities, but not all those are required to start building a home right away. Unimproved land loans will generally have less favorable options than improved land loans. 

Raw land entails any property that doesn’t yet have amenities. While this is just what some people want (like those who want to get off the grid), the loans for this type of land usually require a large down payment (20%+) and higher interest rates. But, this type of land is usually cheaper than improved or unimproved land. 

(We offer all three types of land mentioned above. Simply check out our property map and click on a listing to see what amenities the property has!)

USDA or SBA Loan

It is possible for some people to get a loan from the United States Department of Agriculture to build a primary home in a rural area. There are certain stipulations that need to be met, and these loans are for low or medium-income families. They offer low-interest rates and you may even qualify for a loan with no money down!

The U.S. Small Business Administration (SBA) also offers loans to small business owners who need help financing a land purchase for commercial purposes. These are called SBA 504 loans and are a good option if you’re looking to start a business on the land. 

Home Equity Loan

If you own a home, you may consider using it as collateral for your land purchase. The major risk here is that you could lose your home if you’re unable to pay for the land. That said, it is an option to consider if you have a home and you’re confident you can make the loan payments with no problems. 

Private Loan

You can also get a private loan to purchase raw land. This could be through a family member, friend, or even a local business that’s looking for investment opportunities. Depending on your relationship with the lender, you could get very favorable terms for the loan. These types of loans are often secured by the property, so if you don’t pay, they could foreclose on the land. Private loans from people you have no relationship with could have higher interest rates and require you to pay back the loan faster. 

Owner Financed Purchase

We discussed this option a bit above, but it bears repeating. Owner-financed purchases are often the best option for land buyers, as they’re usually more flexible than traditional lenders. This type of transaction is done with the use of a Land Contract, which is an agreement between buyer and seller. You’ll want to ensure that the seller is trustworthy before signing the Land Contract. 

Since this is the most common type of transaction we do here at Land Elevated, you can check out our reviews to see how happy other people have been with their owner-financed land purchases through Land Elevated. 

Cash Purchase

Last on the list isn’t so much a financing option as it is the quickest and easiest way to purchase land. Buying land outright is possible for many because raw land is far more affordable than purchasing a house. Buyers save thousands of dollars by paying outright. Of course, this isn’t possible for everyone. Luckily, we offer favorable terms to anyone that can provide a large down payment for their Land Elevated purchase. Find out more by contacting one of our Land Specialists today!

Land Financing Options: Conclusion

You don’t have to have a perfect credit score and a big down payment to purchase raw land. However, the more you can put down, the more money you’ll save when all is said and done. And while it’s not the easiest type of loan to get, there are plenty of options for financing your raw land purchase. It’s best to go with an owner-financed option, as private sellers are more flexible than banks or credit unions. But if you’re looking to build your home right away, you’ll probably want to get a construction loan from a local financial institution.

Don’t hesitate to contact us with any questions about land purchases. We’re here to make your land-owning dream come true!