To finance raw land, you will most likely use a specialized land loan from a local bank or credit union, a government-backed program if you qualify, or seller financing directly from the property owner. Expect a larger down payment than a home purchase — commonly 20% to 50% — interest rates between 4% and 10%, shorter loan terms, and more documentation about the property itself. Lenders treat unimproved land as riskier collateral because there is no building to resell if you default, so the qualifying bar sits higher across the board.
Land Loans From Banks and Credit Unions
Local community banks and credit unions are the most common source of traditional land financing. They know the local market, including soil conditions, flood zones, and recent comparable sales, and they are usually more willing to underwrite raw land than large national banks. The product you will be quoted is a “land loan” or “lot loan,” and its terms differ meaningfully from a residential mortgage.
Interest rates typically run 4% to 10%, with raw acreage at the higher end and partially improved lots at the lower end. Down payments generally fall between 20% and 50% depending on how developed the parcel is. A lot with road access and nearby utilities might require 20% to 30% down; completely raw acreage with no improvements can require 50%. Those higher equity requirements exist to cushion the lender against the price swings unimproved land tends to see.
Most lenders want a credit score of at least 680 to 720, with better pricing above 700. Debt-to-income ratio generally needs to stay under 30% to 40%, though some lenders stretch to 43% for strong applicants. Loan terms are shorter than a 30-year mortgage — many land loans run 5 to 15 years, sometimes with a balloon payment at the end that forces you to refinance.
Government-Backed Loan Programs
Several federal programs finance land purchases if you meet specific eligibility rules. Each targets a different buyer and use.
USDA Rural Housing Loans
The USDA Rural Housing Service offers direct loans under Section 502 of the Housing Act of 1949, governed by 7 CFR Part 3550, to help low- and very low-income borrowers who cannot get credit elsewhere buy property in designated rural areas.1eCFR. 7 CFR Part 3550 – Direct Single Family Housing Loans and Grants The purpose is to acquire, build, or rehabilitate a modest dwelling, so your application must include a plan to construct a primary residence on the land. Buying raw acreage with no building plan does not qualify.
Eligibility turns on the area’s median income and whether the property sits inside a USDA-designated rural zone. The guaranteed loan program has no minimum credit score, though you must demonstrate a willingness and ability to manage debt.2Rural Development. Single Family Housing Guaranteed Loan Program Down payments are often lower than conventional land loans.
FSA Farm Ownership Loans
If you plan to farm the land, the USDA Farm Service Agency offers direct farm ownership loans up to $600,000 with repayment terms up to 40 years.3Farm Service Agency. Farm Ownership Loans Beginning farmers and ranchers may qualify for a down payment program requiring only 5% down. Rates are set by the federal government; as of early 2026, the direct farm ownership rate is 5.75%.4Farm Service Agency. Current FSA Loan Interest Rates
SBA 504 Loans for Business Use
Small business owners buying land for commercial purposes can use SBA 504 loans, which explicitly cover land and existing buildings.5U.S. Small Business Administration. 504 Loans The structure is a partnership between a conventional lender, a Certified Development Company, and you. Down payment depends on the situation: 10% is the standard minimum, 15% applies if your business has operated for two years or less or if the project involves a single-purpose building, and 20% applies when both conditions are true.
Occupancy is the key restriction. The business must occupy at least 51% of an existing building or 60% of a newly constructed building on the property.6eCFR. 13 CFR Part 120 Subpart H – Development Company Loan Program (504) A 504 loan cannot be used for speculation or investment in rental real estate.
Seller Financing and Land Contracts
When a bank will not lend, many raw land transactions use seller financing. The property owner acts as the lender, most often through a contract for deed (also called a land installment contract), where you make a down payment and monthly installments directly to the seller. The seller keeps legal title until you complete all payments.7Consumer Financial Protection Bureau. What Is a Contract for Deed?
The appeal is flexibility. Rate, term, and down payment are all negotiable, some agreements build in a balloon so you can improve the land and refinance later, and there is no minimum credit score to clear.
The risk sits on the buyer. Many contracts allow the seller to repossess the property and keep every payment you have made, including the down payment and improvement costs, if you default even once.8Consumer Financial Protection Bureau. Report on Contract for Deed Lending Contract-for-deed defaults often lack the procedural protections of a mortgage foreclosure, and state laws vary widely. Have a real estate attorney review any land contract before you sign.
Other Ways to Fund a Land Purchase
Home Equity Loan or HELOC
If you already own a home with equity, a home equity loan or HELOC lets you borrow against that property to buy raw land. Because the debt is secured by your developed home rather than the unimproved land, rates are generally lower than a standalone land loan, and from the seller’s perspective you show up as a cash buyer. The tradeoff: your primary residence is the collateral. Miss payments and the house is at risk, not just the land. A HELOC can also cover early site work like clearing or well drilling, but the variable rate on most HELOCs can push your payment up over time.
Hard Money Loans
Hard money lenders are private investors or companies that lend based on the property’s value rather than your credit. Closings can happen in days, but the cost is steep. Rates in 2026 typically start at 12% or higher, loan-to-value ratios cap around 65% to 75% (so you need 25% to 35% down), and terms usually run 12 to 24 months. That makes hard money a bridge to permanent financing rather than a long-term hold. Not every hard money lender will touch raw land, so confirm before applying.
Self-Directed IRA
A self-directed IRA can hold real estate, including raw land, as an investment. The purchase must run through the IRA’s custodian — you cannot buy in your own name and transfer it in. All expenses come out of the IRA, and all income or sale proceeds flow back into it.
The IRS prohibited transaction rules under 26 U.S.C. § 4975 are strict. The land cannot benefit any “disqualified person,” which includes you, your spouse, your parents, your children, and their spouses.9Office of the Law Revision Counsel. 26 USC 4975 – Tax on Prohibited Transactions You cannot live on the land, run a business from it, or let family use it. A violation can disqualify the entire IRA, triggering immediate taxation of the full balance plus penalties. If the IRA finances part of the purchase with a mortgage, the debt-financed portion of future income or gain may be subject to Unrelated Business Income Tax under IRC Sections 512 and 514.
Due Diligence Lenders Will Expect
Raw land can hide problems a home inspection would never catch, and some of the checks below are required to get financing at all.
Environmental Assessment
A Phase I Environmental Site Assessment reviews the property’s history for contamination, such as former industrial use, underground storage tanks, or illegal dumping. It follows the ASTM E1527-21 standard and typically costs $1,500 to $5,000 depending on size and complexity. Many lenders require one before approving a land loan.
The assessment matters beyond the lender. Under CERCLA, the federal Superfund law, a property owner can be held liable for cleaning up hazardous substances on the land even if someone else caused the contamination. The “innocent landowner” defense requires you to have conducted “all appropriate inquiries” before purchase, which a Phase I satisfies, and those inquiries must be completed within one year before the acquisition date.10eCFR. 40 CFR Part 312 – Innocent Landowners, Standards for Conducting All Appropriate Inquiries
Utilities and Septic Feasibility
Figure out early whether the land will support the utilities you need. If there is no public water, plan on drilling a well. Drilling commonly runs $20 to $30 per foot, with additional cost for pipe casing and a pump. Extending electric service to a remote parcel can cost hundreds of dollars per foot.
Without a municipal sewer connection, you will need a septic system, which requires a soil percolation test to confirm the ground can absorb wastewater. A failed perc test can make the property unbuildable for residential use under local health codes, or push you into a more expensive alternative septic design.11U.S. Environmental Protection Agency. Frequent Questions on Septic Systems Perc test fees range from a few hundred to a few thousand dollars. Make the test a contingency in your purchase agreement so a bad result does not trap you into buying land you cannot develop.
Wetlands and Water Features
Wetlands, streams, or other water features on the property can restrict what you can build. Section 404 of the Clean Water Act requires a permit from the U.S. Army Corps of Engineers before you discharge dredged or fill material into waters of the United States, which includes most wetlands.12Office of the Law Revision Counsel. 33 USC 1344 – Permits for Dredged or Fill Material The permit process can take months or years. Some lenders will not finance land with significant wetland coverage.
Mineral Rights and Access
Mineral rights can be legally separated from surface rights. If prior owners sold the mineral rights, the holder may have the right to enter your land for exploration or extraction regardless of your wishes. Severed mineral rights can also lower the appraised value and complicate financing. Check the chain of title before you buy.
Confirm zoning with the local planning department for your intended use. Rezoning is possible but slow and never guaranteed. If the land is landlocked, you will need a recorded easement giving you legal access across a neighboring property. Most lenders require proof of legal access, and landlocked parcels without an easement are effectively unmarketable.
Documents to Gather Before You Apply
Land loan applications need more paperwork than a home purchase because the lender has less collateral information to work with. Start collecting early.
On the personal side, expect to provide tax returns, pay stubs, two to three months of bank statements, and a full accounting of your debts. Many lenders use the Uniform Residential Loan Application (Fannie Mae Form 1003) even for land loans.13Fannie Mae. Uniform Residential Loan Application (Form 1003) In the property section, use the full legal description rather than a street address, since many raw parcels have no address. If part of your down payment is a gift, identify the gift source and type in the “Gifts or Grants” section.14Fannie Mae Single Family. Uniform Residential Loan Application – Fannie Mae Form 1003
On the property side, expect to provide:
- A professional boundary survey, typically with metes and bounds descriptions.
- A zoning verification letter from the local planning authority confirming permitted uses.
- A Phase I Environmental Site Assessment if the lender requires one.
- Recorded easement documentation if the property does not front a public road.
- Proof that property taxes are current so no tax lien outranks the lender.
- A preliminary construction plan if the lender expects you to build within a set window.
What Closing Looks Like
Once your application is in, the lender orders an appraisal. Appraising raw land is harder than appraising a home because comparable sales of similar unimproved parcels can be scarce. The appraiser looks at recent sales of similar land, zoning, access, topography, and development potential.
A title search follows to confirm the seller has clear ownership and no liens, easements, or competing claims cloud the title. Title insurance is then issued to protect you and the lender. The lender must give you a Closing Disclosure at least three business days before the closing date so you can review the final loan terms, rate, closing costs, and monthly payment.15eCFR. 12 CFR 1026.19 – Certain Mortgage and Variable-Rate Transactions
At closing you sign the promissory note (your commitment to repay) and the deed of trust or mortgage (which gives the lender a security interest in the land). The deed of trust is recorded in the county’s public records to establish lien priority. After the down payment reaches the escrow agent and documents are notarized, the lender funds the seller and ownership transfers to you.
Tax Angles to Know Before You Buy
Owning raw land creates tax obligations and potential deductions that look different from a home purchase.
Property Taxes
You owe property taxes on raw land from the date of purchase, whether or not you ever build. Rates and assessment methods vary by jurisdiction. Land used for agriculture often qualifies for a reduced assessment, which can substantially lower the annual bill. Requirements vary but generally include active farm use for a minimum number of consecutive years and meeting a minimum gross income threshold. Your county assessor can tell you what qualifies locally.
Investment Interest Expense
If you borrow to buy raw land as an investment rather than a residence or business, the interest counts as investment interest. Under IRC Section 163(d), the deduction is limited to your net investment income for the year, meaning investment income minus investment expenses.16Office of the Law Revision Counsel. 26 USC 163 – Interest Any interest you cannot deduct this year carries forward. You claim the deduction on IRS Form 4952.17IRS.gov. Form 4952 – Investment Interest Expense Deduction
Conservation Easement Donation
If the land has conservation value (scenic views, wildlife habitat, farmland, historical significance), you may be able to donate a conservation easement — a permanent development restriction — to a qualified organization and claim a federal income tax deduction under IRC Section 170(h).18Office of the Law Revision Counsel. 26 USC 170 – Charitable, Etc., Contributions and Gifts The deduction is generally capped at 50% of adjusted gross income, with up to 15 years of carryforward. A qualified appraisal is required for donations valued over $5,000. Conservation easements draw heavy IRS scrutiny, so work with a tax professional who handles them regularly.