Yes, you can borrow money against land. Landowners can pledge a parcel as collateral for a loan, and buyers can finance a purchase with the land itself securing the debt, generally at interest rates in the 4% to 10% range depending on the type of land and the borrower’s profile. The catch is that vacant land is harder for a lender to resell than a finished house, so expect bigger down payments, shorter repayment terms, and tougher approval standards than you’d see on a home mortgage.
Which Loan Fits Your Situation
The right product depends on three things: whether you already own the land, how developed it is, and what you plan to do with it.
- Raw or vacant land loan. For undeveloped parcels with no utilities or infrastructure. Highest rates, largest down payments, because lenders treat this as the riskiest category.
- Lot loan. For improved parcels that already have utility connections and road access. Rates and down payments come down because the land is closer to being buildable.
- Construction-to-permanent loan. Covers the land purchase and the build, then converts into a standard mortgage once construction is complete. If you already own the land, your equity in it can count toward the down payment.
- Home equity loan or HELOC. If you already have equity in a home, borrowing against that home to buy or improve land usually beats a standalone land loan on rate.
- USDA and FSA loans. The USDA runs programs for rural properties, and the Farm Service Agency offers direct farm ownership loans with rates as low as 1.875% for qualified beginning farmers under the down payment program.1Farm Service Agency. USDA Announces September 2025 Lending Rates for Agricultural Producers
- SBA 504 loan. Business owners can use this to buy land for commercial operations. The business must be for-profit, have a tangible net worth under $20 million, and average under $6.5 million in net income after taxes over the two prior years.2U.S. Small Business Administration. 504 Loans
- Seller financing (land contract). The seller acts as the lender. Easier to qualify for, but fewer than half of states have laws specifically governing these contracts, and they’re often not publicly recorded, leaving buyers exposed to title disputes and forfeiture.
How Lenders Categorize the Land Itself
The parcel’s development stage largely dictates your rate and how much you’ll have to put down.
Raw Land
No roads, no utility hookups, no grading or clearing. Lenders charge the highest rates and demand the most equity because there’s no guarantee the parcel will ever be built on. Down payments of 35% to 50% are common, and some lenders won’t touch raw land at all.
Unimproved Land
Some preliminary work exists — a basic access road, nearby utility lines — but the parcel isn’t construction-ready. Down payments typically fall between 25% and 35%.
Improved Land
Water, electricity, sewage, and established road frontage are all in place. Best terms of the three categories, with down payments that can drop to 15% to 20%.
What Lenders Require of You
Land loan applications get harder scrutiny than home mortgages, because if you stop paying, the collateral is slower to sell.
Credit Score
Most conventional lenders want at least 670, and scores above 700 tend to qualify for the best rates. Some government-backed programs are looser. The USDA Single Family Housing Guaranteed Loan Program sets no minimum credit score but requires applicants to show a willingness and ability to manage debt.3Rural Development. Single Family Housing Guaranteed Loan Program
Debt-to-Income Ratio
Most lenders cap total monthly debt against gross monthly income at around 43%. The USDA program uses 41%, with exceptions up to 44% when the borrower has strong compensating factors like significant cash reserves or a long credit history.4U.S. Department of Agriculture, Rural Development. HB-1-3555, Chapter 11 – Ratio Analysis
Down Payment and Loan-to-Value
Loan-to-value limits on land are far more conservative than on finished homes. A home purchase might go through with 3% to 5% down; raw land loans typically want 35% to 50% down, capping LTV at 50% to 65%. Improved lots let you put down 15% to 25% because the infrastructure raises the resale value and reduces the lender’s exposure.
Documents You’ll Need to Produce
Land loans require more specialized paperwork than a standard mortgage. Each piece helps the lender confirm the parcel’s boundaries, legal status, condition, and market value.
Land Survey
A professional boundary survey establishes the exact dimensions of the parcel and flags encroachments and easements. A standard residential lot survey typically runs $500 to $2,000; five- to ten-acre parcels can cost $1,500 to $6,000 depending on terrain, tree cover, and whether older survey markers still exist.
Title Search and Title Insurance
A title company reviews the ownership history and issues a preliminary title report showing any liens, unpaid judgments, or competing claims. Most lenders also require you to buy title insurance protecting both you and the lender if a defect surfaces later.
Appraisal
A professional appraisal, following the Uniform Standards of Professional Appraisal Practice, sets the ceiling on how much the lender will finance. The appraiser weighs zoning, road access, topography, and nearby development trends against comparable sales.
Zoning and Land-Use Verification
The lender wants proof that local zoning allows your intended use. You may need a zoning confirmation letter or a land-use compatibility statement from the local planning department. If the property doesn’t conform to current zoning but is accepted by the local authority, the appraiser has to note it as legally nonconforming and assess the effect on value.
Environmental and Soil Testing
For larger parcels, or land with a commercial or industrial past, lenders may require a Phase I Environmental Site Assessment to flag potential contamination like underground tanks or chemical spills. If you plan to build without a public sewer connection, many lenders require a percolation test to confirm the soil can support a septic system. A failed perc test can make the land unbuildable for residential use and can sink the loan.
Closing Costs and Federal Disclosures
Closing costs generally run 2% to 5% of the loan amount, covering the appraisal, title work, survey, recording fees, and any required environmental testing. Recording fees vary by county and are often calculated by page count rather than a flat rate. A mobile notary, if you need one, typically adds $75 to $250.
Consumer land loans fall under the Truth in Lending Act. You should get a Loan Estimate shortly after applying and a Closing Disclosure before the closing date, laying out the annual percentage rate, total interest cost, payment schedule, and all fees so you can compare offers.5Consumer Financial Protection Bureau. 12 CFR 1026.18 – Content of Disclosures At closing you’ll sign the promissory note laying out repayment terms and default consequences, along with the mortgage or deed of trust giving the lender a security interest in the land.6Consumer Financial Protection Bureau. What Can I Expect in the Mortgage Closing Process
One important boundary: loans taken out primarily for business, commercial, or agricultural purposes are exempt from these consumer disclosure rules.7eCFR. 12 CFR 1026.3 – Exempt Transactions If you’re buying farmland to farm or a commercial parcel for your business, the lender isn’t required to give you the standardized disclosures, though many do anyway.
Using Land You Already Own as the Down Payment
If you own the land free and clear (or with meaningful equity) and want to build on it, that equity can serve as your down payment on a construction-to-permanent loan. The lender orders a new appraisal, and the difference between the appraised value and any outstanding balance is treated as your equity contribution. In some cases, the equity alone satisfies the entire down payment.
FHA, VA, and USDA construction programs all allow land equity to count toward the down payment. An FHA construction loan needs 3.5% down, so if your land equity meets or exceeds that, you may bring no cash to closing. VA-eligible borrowers can potentially finance 100% of construction if their land equity is sufficient. When the build is done, the loan converts into a standard mortgage with a 15- to 30-year repayment term, and you’re making one set of payments.
What Happens If You Default
Land loans carry the same foreclosure consequences as any other mortgage. Most promissory notes include an acceleration clause letting the lender demand the entire remaining balance after default. The process usually starts with a breach letter after you’re roughly 90 days behind, giving you about 30 days to catch up on missed payments plus late fees. Miss that window and the lender can accelerate the full balance and begin foreclosure.
Whether the foreclosure runs through the courts (judicial) or outside them (nonjudicial) depends on state law. Either way, the property is eventually sold at auction. If the sale doesn’t cover what you owe, the lender may pursue a deficiency judgment for the shortfall in many states. Because vacant land often sells for less at auction than its appraised value, deficiency risk is real, and it’s part of why lenders demand such large down payments up front.
How the Interest Is Taxed
Interest on a land loan isn’t deductible the way interest on your primary home mortgage is. If you hold the land as an investment, the interest counts as investment interest and is deductible only up to your net investment income for the year.8Office of the Law Revision Counsel. 26 U.S. Code 163 – Interest Excess interest carries forward to future years. You take it as an itemized deduction on Schedule A, so it only helps if you itemize.
If you don’t have enough investment income to absorb the interest, you can elect under IRC Section 266 to add the interest (and property taxes) to the land’s cost basis instead. That raises your basis and cuts the taxable gain when you sell. You have to make the election each year by attaching a statement to your return. And don’t forget the property taxes themselves: you owe them on vacant land, and unpaid property taxes create a lien that takes priority over the lender’s lien, which puts the land at risk of a tax sale.
If You Plan to Sell Before Payoff
Most land loans include a due-on-sale clause letting the lender demand full repayment if you transfer the property without prior written consent.9Office of the Law Revision Counsel. 12 U.S. Code 1701j-3 – Preemption of Due-on-Sale Prohibitions Federal law specifically lets lenders enforce these clauses on loans secured by real property, overriding state laws that might otherwise limit them. A buyer generally can’t assume your loan without lender approval, and while some lenders will allow an assumption at or near the existing rate, they aren’t obligated to.