Buying vacant land is a substantial investment and banks treat it as such. How do you finance a land loan without money down?
There are some ways to finance a land loan without money down. These include getting the seller to finance the purchase. You might also be able to get assistance from the USDA or Veterans Administration depending on the kind of land you are buying, and whether or not you are a veteran.
We’ll explore all the above mentioned methods, including seller financing, and go into detail about what the USDA and VA progrmas are for the purpose of buying a lot of land.
Table of Contents
What is a normal down payment for a land loan?
You are probably here because you know at least some of the information about how much money to put down to buy land. A bank or local lender already told to 30 to 40% or more because a land loan is considered higher risk than a traditional home sale, as developing land can be difficult.
These down payment amounts can put land ownership out of reach for some. Let’s introduce you to some methods you can use to buy land without a down payment.
How do I buy land without a down payment?
In some less than good markets, you might be able to find a seller who is willing to accept instalment payments for their land. Instead of getting a loan, you’ll write up a contract that says that you’ll pay the seller a certain amount per month or year until the contract is up - with the downfall of course being that failure to pay means you forfeit the land. Seller financing can also bring favorable interest rates.
Seller financing can have a couple of limits. If the seller has a mortgage on the land, the original lender must agree to the terms (because the original mortgagee won’t live there anymore). It’s also possible that the seller might be a bit older and want a shorter term loan because they assume they won’t live long enough to provide a 30 year loan.
You might end up needing a realtor or a real estate attorney - or both, to properly set up the contract and terms, which will hopefully still not be as costly as a huge down payment.
That said, seller financing isn’t always available. Some owners will want cash right away in the form of a loan from you. Even if they don’t say that seller financing is available, feel free to ask.
You can indeed use a personal loan to buy land. You’ll need better than average credit, but personal loans also don’t typically require any securities. The one challenge you might find is getting access to a personal loan large enough to buy a plot of land.
Personal loans don’t typically have down payments, but also have higher interest rates because of the lack of security or down payment. Consider exploring online to see available rates. You could also consider going to your existing bank - where they know you - to get the best rates.
United States Department of Agriculture loans are available for those who are in a lower income bracket but want to buy rural land, often for the purpose of growing crops or raising animals.
USDA loans are rather strict about how much money you can make relatively to your area, and they even check the area every five years to make sure it is still considered rural. It’s also worth noting that like loans you can get at a bank, the term can be relatively short - like 2 years. This will keep the payment relatively high, but the USDA will allow for a lack of down payment.
There are indeed farm specific loans from the USDA, so if you aren’t just going vacant - but want to make a farm, they’ll help with that!
Veterans Administration Loans
The Veterans Administration attempts to honor those who have served in the military by providing a variety of services, including loans for land and homes. We were rather specific in wording with the previous sentence, because, in the case of a VA loan, you can’t just buy land, but most buyers make plans to build a home on the land and include the amount in the loan.
These are still great for people who served in the military and intended to buy a plot of land and build their dream home on it. The down payment is still zero.
Use home equity to buy vacant land
If you have en existing home, you might have enough equity in that home to take out a loan and buy vacant land with the difference in worth. The good news about a home equity loan (also known as a home equity line of credit, or HELOC) is that the interest rates are relatively low. The bad news is that failure to pay the HELOC back could result in a lien against your home and other serious problems.
What are the best options for buying land with no down payment?
Our go to would be seller financing simply because the seller sets the terms for financing and could be favorable, especially in a down market. You also won’t risk too much besides having to vacate the land in the event you fail to pay.
Otherwise, our strongest suggestion if you can’t do a Veterans Administration loan or USDA loan, is to use the home equity line of credit. These tend to have a lower interest rate than personal loans, and the bank is still going to be more interested in getting their money back from you rather than owning your home - the bank doesn’t want more structures!
What’s wrong with paying a down payment?
We have no objections to paying as much as you can for a down payment, especially in an effort to keep the monthly payment low for a loan. The issue with a down payment for vacant land is that the amount is usually rather large. A down payment for a typical home can be anywhere from 3.5% up to 20% or more if you choose. Most people don’t quite have 30% or more sitting around to finance a land purchase, especially for a plot worth even $100,000 - that’s north of $30,000!
So we fully support having a down payment on a house, car, or other large purchases, but we want to introduce better methods to buy and develop land easier.
Can I borrow money for a down payment?
A bank will often ask if you received any money for a down payment - as a gift especially. Generally, receiving a bank from your parents or family or friends just needs to be documented as such to indicate that you received funds that weren’t taxable.
About THE AUTHOR
Brittany has been in the land business since 2020 when the world was starting to shut down. Since then, we’ve sold to dozens of people from ATV weekend warriors to camping enthusiasts to retired truck drivers. Our inventory spans mostly in the western United States. We’ve been trained by experience, land acquisition courses, and hundreds of hours meeting with county assessors and clerks, zoning officials, realtors, and land investors. We’ve answered hundreds of questions from people regarding the buying and use of land.Read More About Brittany Melling