Yes, you can get a loan for financing land, but the terms are stiffer than a standard home mortgage. Because raw acreage has no structure a lender can quickly resell, expect down payments of 20% to 50%, interest rates roughly between 4% and 10%, and repayment periods of 5 to 15 years rather than 30. What you actually pay depends on the kind of land you’re buying, your credit profile, and which lending channel you use.
How the Type of Land Changes Your Terms
Lenders sort parcels into three buckets, and the bucket sets the price of admission.
Raw land is completely undeveloped: no road access, no utilities, no infrastructure. It is the hardest category to finance because the lender has almost no way to recover its money if you default. Down payments of 35% to 50% are common, and interest rates sit at the top of the land-loan spectrum.
Unimproved land has some basic features, perhaps a gravel road or a drilled well, but lacks full utility connections or building permits. Down payments here typically fall between 20% and 35%.
Improved land already has access to public roads, electricity, water, and sewer or an approved septic system. Because the site is essentially build-ready, lenders treat these loans as the lowest-risk land financing. Down payments start around 20%, and rates are the most competitive of the three categories.
The gap between raw and improved land extends past the loan itself. If you buy raw, you also have to pay for the utility connections, road work, and approvals that turn the parcel into something you can build on.
What Lenders Expect From You
Most land lenders want at least 20% down, and up to 50% on raw parcels. Those figures dwarf the 3% to 5% minimums common on conventional home mortgages. The exact number depends on the land type, your finances, and the lender’s own risk appetite.
Credit expectations run higher too. Minimums tend to start in the upper 600s, though a score of 700 or above meaningfully improves both your odds of approval and the rate you’re offered. Debt-to-income ratio carries extra weight because vacant land generates no rental income to offset the payment.
Interest rates on land loans generally land between 4% and 10%, well above conventional 30-year mortgage rates. Raw land sits at the high end, improved land at the low end, and unimproved land somewhere in between.
Repayment periods are shorter. A standard mortgage stretches 15 to 30 years; many land loans run only 5 to 15. Some carry a balloon payment, a large lump sum due at the end of the term after years of smaller monthly payments. If you can’t cover the balloon when it comes due, you have to refinance or sell. Before signing, ask the lender in writing whether the loan amortizes fully or ends in a balloon.1Consumer Financial Protection Bureau. What Is a Balloon Payment? When Is One Allowed?
Where to Get a Land Loan
Local Banks and Credit Unions
Community banks and credit unions are among the most common sources for land financing. Because they keep these loans on their own books rather than selling them to investors, they have more flexibility to approve deals a national lender would reject. A relationship with a local institution, especially one whose banker knows the area and the property, can shift the terms you’re offered.
USDA Rural Housing and Farm Loans
If you plan to build a modest home in a rural area, the USDA’s Section 502 Direct Loan program can finance the purchase of a building site. The loan must include funds to construct a dwelling on the site, and the finished home’s market value cannot exceed the program’s loan limit for your area.2eCFR. 7 CFR Part 3550 – Direct Single Family Housing Loans and Grants
For agricultural buyers, the Farm Service Agency offers Farm Ownership Loans that can finance farmland. Regular and joint-financing versions provide up to 100% financing. The Down Payment version, available to beginning farmers and to minority and women applicants, requires just 5% cash down.3Farm Service Agency. Farm Ownership Loans
SBA 504 Loans for Business Use
If you’re buying land for a business, say a warehouse site or a future retail location, the Small Business Administration’s 504 loan program can help. A 504 loan covers land purchases up to $5.5 million, but the property cannot be used for speculation or passive investment. Your company must operate as a for-profit business, have a tangible net worth below $20 million, and show average net income under $6.5 million after federal taxes over the two years before you apply. You submit the application through a local Certified Development Company.4U.S. Small Business Administration. 504 Loans
Seller Financing
In a seller-financed deal, the person selling the land acts as the lender. You sign a promissory note and a deed of trust directly with the seller, and no bank is involved. This is especially common for rural or raw parcels institutional lenders won’t touch. Interest rate, down payment, and repayment schedule are all negotiable between the two of you. The tradeoff is less regulatory protection: no underwriter is checking that the terms are sustainable for you, so have an attorney review any seller-financed agreement before you sign.
Financing Land and a Home Together
If the goal is to buy land and build on it, a construction-to-permanent loan lets you combine both steps into a single closing. Instead of a separate land loan followed by a construction loan later, you finance the land purchase, the construction, and the eventual permanent mortgage in one deal.
FHA One-Time Close
The FHA’s Construction-to-Permanent program wraps lot purchase, construction financing, and the long-term mortgage into one loan closed before building begins. The borrower must either already own the land or buy it at closing. Down payments start at 3.5% of the total project cost, credit score minimums are as low as 620, and debt-to-income ratios up to 50% are permitted. The property must be a single-family primary residence, and you must work with a licensed general contractor. Lenders often require a 5% to 10% contingency reserve for unexpected construction costs.5HUD. Mortgagee Letter 2019-08 – Construction to Permanent Program
VA Construction Loans
Eligible veterans and active-duty service members can use a VA-backed purchase loan to build a new home, and the loan can include the cost of the lot. VA loans allow zero down payment up to the county lending limit. Finding a lender that actually offers VA construction loans is harder than finding one for a standard VA purchase, and standalone land purchases without a construction plan generally aren’t covered.6Veterans Affairs. Purchase Loan
Costs Beyond the Purchase Price
The price on the listing is only part of what you’ll spend. If the parcel isn’t build-ready, these costs can add tens of thousands before you break ground:
- Running electricity to a remote site costs roughly $2,500 to $12,500 depending on distance and whether the line is buried or above ground.
- Drilling a well and installing a septic system can add $6,000 to $20,000 or more. Connecting to an existing municipal water line runs $1,000 to $6,000, and a sewer hookup costs $1,600 to $10,900.
- A professional boundary survey, required by nearly every lender, typically runs $900 to $2,000 for a standard residential parcel. Large tracts, heavily wooded sites, or properties needing an ALTA survey cost more.
- If the property has no sewer connection, a percolation test to determine whether the soil can support a septic system runs from about $300 for a single hand-dug test hole to $3,000 for machine-dug tests on larger lots. A failed perc test can make a property unbuildable, so consider making the purchase contingent on passing one.
- Land clearing runs roughly $1,000 to $12,000 per acre depending on vegetation density, soil type, and regional labor rates.
- Liability insurance on vacant land can be as little as $150 to $300 per year on a small lot, or $900 to $1,800 annually for larger tracts in wildfire zones or on steep terrain.
Lenders factor these numbers into their view of whether the project pencils out. Written estimates from contractors and utility companies, brought to the application, strengthen your case.
Checks to Run Before You Commit
Verify that local zoning allows what you have in mind. Municipalities divide land into residential, commercial, industrial, and agricultural districts, and each has its own rules on what you can build, how tall it can be, and how close to property lines structures may sit. A single-family home in a low-density residential zone usually needs no special approval. Converting agricultural land to commercial use, or building at higher density, typically requires a variance or rezoning that takes time and can be denied.
Wetlands add a federal layer. Section 404 of the Clean Water Act requires a permit before you place fill material into wetlands or other protected waters. No permit will be issued if a less damaging alternative exists or if the project would significantly degrade the waterway. Small impacts may qualify for a general permit; significant development triggers an individual permit reviewed by the U.S. Army Corps of Engineers, a process that can take months and may require you to offset any unavoidable damage.7US EPA. Permit Program Under CWA Section 404
Many lenders also require a Phase I Environmental Site Assessment before approving a land loan. It reviews the property’s history, includes a physical inspection, and identifies potential contamination from prior industrial or agricultural use. A Phase I helps both lender and buyer qualify for liability protections under federal environmental cleanup law. Without one, you could inherit responsibility for someone else’s pollution.
How Ownership Is Taxed
The IRS treats your land expenses differently depending on whether you hold the property as an investment or for personal use.
Property Taxes
If you hold vacant land as an investment, the property taxes are deductible as an itemized deduction on Schedule A and are not subject to the annual state and local tax cap (currently $40,400 for most filers in 2026, or $20,200 if married filing separately). That cap applies only to taxes on a primary or second home and to state income or sales taxes. If you hold the land for personal use, say a future home site with no investment purpose, the property taxes count against that capped amount.
Loan Interest
Interest on a loan used to buy investment land is treated as investment interest expense. You can deduct it, but only up to your net investment income for the year. Any excess carries forward.8Internal Revenue Service. Form 4952 – Investment Interest Expense Deduction If the land is purely personal and doesn’t qualify as a first or second home, the interest is personal interest and isn’t deductible at all.9Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction
Capitalizing Costs Instead
If you’d rather not take the deduction, or can’t because you don’t itemize, you can elect under Section 266 of the tax code to add property taxes and loan interest to the land’s cost basis. That raises what you paid for the land on paper and reduces your taxable gain when you eventually sell. The election must be made each year by attaching a statement to your return identifying the property and the costs you’re capitalizing.10eCFR. 26 CFR 1.266-1 – Taxes and Carrying Charges Chargeable to Capital Account