Yes, you can borrow money to buy land, and there are several kinds of land loans built for exactly that purpose. The tradeoff is that lenders treat vacant property as riskier collateral than a house, so you should plan on a larger down payment, an interest rate a couple of points above a standard mortgage, and a repayment window measured in years rather than decades. Which loan fits depends on what the parcel looks like today and what you intend to do with it.
How the Type of Land Changes What You’ll Pay
Lenders sort vacant property into three tiers, and the tier drives your down payment and your rate.
- Raw land has no utilities, no road access, and no grading. Federal banking guidelines set a minimum down payment of 35% here, and many lenders push higher. Rates sit at the top of the range.
- Unimproved land has had some work done — a cleared lot, a partial utility connection — but isn’t ready for construction permits. Minimum down payment drops to around 25%.
- Improved land has road access, water, sewer or septic capacity, and electric hookups in place. Because these lots are essentially shovel-ready, the minimum down payment runs about 15% and the rates are the most competitive.
If the property has no municipal sewer, the lender will almost certainly require a percolation test before closing. A perc test measures how quickly water drains through the soil, which determines whether a septic system can be installed. Expect to pay somewhere between $750 and $1,900, more for complex sites. The FDIC’s examination guidance for construction and land development lending specifically lists percolation results and soil borings among the items lenders should verify.1FDIC. Construction and Land Development Lending Core Analysis Procedures A failed test doesn’t automatically kill the deal, but it adds cost the lender will weigh.
Loan Options That Will Actually Fund a Land Purchase
Bank and Credit Union Land Loans
Local banks and credit unions are the most common source for standalone land financing. They know the local market and are often willing to lend on parcels a national bank would refuse. Terms usually run 5 to 15 years rather than 30, and some loans include a balloon payment — smaller monthly payments for several years, then the remaining balance owed in one lump sum. Interest rates from banks and credit unions on vacant land generally fall between 7% and 10%, compared with roughly 6% to 7% for a standard residential mortgage in 2026.
Construction-to-Permanent Loans
If you plan to build, a construction-to-permanent loan rolls the land purchase and the building costs into a single closing. You draw funds as construction progresses, and the loan converts to a standard mortgage once the home is finished. Fannie Mae’s guidelines allow this as a single-closing transaction where the borrower purchases the lot and begins construction under one loan, which then converts to a long-term mortgage with terms up to 30 years.2Fannie Mae. FAQs: Construction-to-Permanent Financing You’ll need finalized building plans and a licensed contractor before the lender approves it.
USDA Rural Housing Site Loans
For land in rural areas, the USDA offers Section 523 and Section 524 housing site loans specifically for purchasing and developing residential lots. Section 523 applies when the housing will be built through an approved self-help construction method; Section 524 has no restriction on how the home gets built. Both target low- and moderate-income borrowers, with moderate income capped at 115% of the area median income.3Rural Development U.S. Department of Agriculture. Rural Housing Site Loans The USDA’s Single Family Housing Direct Loan program can also fund the purchase and preparation of a site, including water and sewage facilities, for qualifying low-income households in rural communities.4Rural Development U.S. Department of Agriculture. Single Family Housing Direct Home Loans
SBA 504 Loans for Commercial Land
Business owners buying land for commercial use can tap the SBA 504 program. The project cost splits three ways: a conventional lender covers at least 50%, the SBA-backed portion through a Certified Development Company covers up to 40%, and the borrower puts down a minimum of 10%. Land acquisition is explicitly listed as an eligible project cost under the program’s regulations.5eCFR. 13 CFR 120.882 – Eligible Project Costs for 504 Loans The SBA portion carries a fixed rate and a long repayment term.
Home Equity Loans and HELOCs
If you already own a home with substantial equity, you can borrow against it to buy land. A home equity loan gives you a lump sum at a fixed rate; a HELOC lets you draw funds as needed. Because your existing home secures the debt, rates are typically lower than a standalone land loan. The risk is real. If you default, you could lose your primary residence, not just the land you bought. Lenders generally let you borrow up to 80% of your home’s value minus the remaining mortgage balance, so the available amount may not stretch far enough for expensive parcels.
Seller Financing
In a seller-financed deal, the landowner acts as the lender. You negotiate the interest rate, repayment schedule, and default terms directly, then formalize everything in a promissory note. Depending on the structure, the seller may transfer the deed at closing with the note secured by a mortgage on the property, or hold the deed until you’ve paid in full under a land contract. Rates on seller-financed land generally run 8% to 12%. The real advantage is flexibility: sellers can close faster, accept lower down payments, and work with borrowers whose credit doesn’t meet bank thresholds.
A Note on FHA Loans
The FHA does not insure standalone land loans. You cannot get an FHA-backed loan simply to buy a vacant lot and sit on it. FHA does offer a construction loan program that lets you purchase land and build a primary residence under one loan, with credit scores as low as 500 (with a 10% down payment). Once construction is complete, the loan converts to a standard FHA mortgage. You must commit to living in the home; investment land doesn’t qualify.
Rates and Repayment Terms in 2026
Land loans cost more than home mortgages because the lender has less to repossess if you stop paying. A finished house has a clear resale market. An empty lot in the middle of nowhere is harder to sell quickly. Expect roughly these ranges:
- Bank or credit union land loan: 7% to 10%
- Seller financing: 8% to 12%
- Private or hard-money lender: 12% to 16%
Standard residential mortgages are running about 6% to 7% over the same period. You’re paying a meaningful premium for buying dirt without a structure on it. The gap narrows for improved lots and widens for raw acreage.
Terms are shorter, too. Where a home mortgage might stretch to 30 years, most standalone land loans run 5 to 15. Some lenders use a longer amortization schedule of 20 or 25 years but require a balloon payment at the 5- or 10-year mark. Your monthly payment feels manageable, then the entire remaining balance comes due at once. Most borrowers plan to refinance into a construction loan or sell the property before the balloon hits. If neither happens, you’re scrambling, so factor that date into your timeline from day one.
What Lenders Want to See From You
Lenders evaluate land loan applicants more conservatively than home mortgage borrowers. The baseline credit score most banks look for is around 700. Some will work with scores in the high 600s for improved lots; others push the threshold into the low 700s for raw land. On this product, the difference between a 690 and a 740 score can meaningfully change your terms.
Down payments follow the classification tiers: roughly 15% for improved lots, 25% for unimproved parcels, 35% or more for raw land. Individual lenders often set higher floors, particularly for remote areas or borrowers without construction plans.
Beyond credit and cash, lenders want a clear picture of your finances. The standard residential application, Fannie Mae’s Uniform Residential Loan Application (Form 1003), collects your monthly income, employment history covering at least the last two years, all asset accounts, and every debt you currently owe or will owe before the loan closes.6Fannie Mae. Instructions for Completing the Uniform Residential Loan Application You’ll also provide two years of tax returns and recent bank statements so the lender can verify liquidity and calculate your debt-to-income ratio. Commercial land purchases use a comparable business application with additional documentation such as profit-and-loss statements.
One thing lenders almost always want to see is a site plan showing what you intend to do with the land. “I’ll figure it out later” is a red flag in underwriting. Borrowers with detailed construction timelines and permits in progress get better rates and faster approvals than those buying speculatively.
Checks That Can Make or Break the Loan Before Closing
Boundary Survey
A professional boundary survey is a standard lender requirement. The surveyor establishes exact property lines, identifies easements such as utility company access corridors, and flags encroachments where a neighbor’s fence or structure crosses onto the parcel. For a standard residential-sized lot, expect to pay between $1,200 and $5,500, with simpler parcels under an acre sometimes coming in below $1,000. Easements deserve close attention: a narrow utility strip rarely interferes with construction, but a large easement that restricts surface use or cuts across the middle of the parcel can reduce appraised value and limit where you can build.
Environmental Review
For commercial land purchases and many larger residential transactions, lenders require a Phase I Environmental Site Assessment. This report reviews historical records, aerial photographs, government databases, and the property’s past uses to flag contamination risks such as former gas stations, dry cleaners, or industrial operations that may have left hazardous materials in the soil. Fannie Mae’s guidelines require a Phase I ESA for every property securing a mortgage loan.7Fannie Mae. Environmental Due Diligence Requirements If the Phase I turns up red flags or a lack of historical data, the lender can require a Phase II involving actual soil and groundwater sampling, which costs considerably more. A standard Phase I starts around $1,850.
Zoning
Verify that local zoning actually allows what you plan to build before you sign anything. A beautifully wooded 10-acre parcel zoned exclusively for agriculture won’t get a residential building permit, and your lender won’t fund a house that can’t legally be built. Most lenders require borrowers to confirm zoning compliance before closing.
Watch for legally nonconforming structures, meaning buildings that were allowed under old rules but don’t comply with current ones. If the property has a barn or shed built under a previous code, the lender may require special insurance to cover bringing those structures into compliance if they’re ever damaged. Unpermitted structures are worse: the loan can stall while the municipality decides whether to let the structure remain or require demolition. Make sure your purchase contract includes a zoning contingency that lets you walk away if the land can’t be used the way you planned.
Appraisal
The lender orders a land appraisal to determine market value. Appraising vacant land is trickier than appraising a house because there’s no structure to compare, so the appraiser relies almost entirely on recent sales of similar parcels. If comparable sales are scarce (common in rural areas), the appraisal can take longer and sometimes comes in lower than the buyer expected. The loan amount is based on the appraised value, not your purchase price, so if it comes in low you’ll need to cover the gap with cash, renegotiate with the seller, or walk away.
Closing Costs and Ongoing Costs
Total closing costs for a land loan generally run 2% to 4% of the loan amount, similar to a residential mortgage closing. That includes the appraisal fee, title search, lender’s title insurance (typically 0.5% to 1.0% of the loan amount), recording fees, and the lender’s origination charges. Budget for these on top of your down payment so you’re not caught short at the closing table. A lender’s title policy protects the bank only; a separate owner’s policy protects your own investment for as long as you own the property.
Owning vacant land also comes with ongoing costs some buyers overlook. Property taxes apply whether or not anything is built. Assessors typically value vacant land at its highest and best use, so a parcel zoned residential in a growing area can carry a heavier tax bill than an empty lot might suggest. Check with the local assessor’s office before you buy.
Your lender may also require vacant land liability insurance, which covers you if someone is injured on the property and you’re found at fault. Even without a building, landowners face liability for unmarked holes, fallen trees, or trespassers who get hurt. Premiums are generally modest compared to homeowners insurance, but the coverage matters, especially on land with ponds, steep terrain, or wooded areas where people might wander.