Buying land is a multi-step process, much like buying a house. One important factor is knowing who will give you a loan for land – and how to get a loan.
Land loans are similar to mortgages, but a bit different because of the lack of collateral. While a home loan can be approved at just about any bank, you might have to look at different sources for a land loan.
Most land buyers recommend using a local credit union or bank to get a land loan – even some larger competitors in the mortgage industry don't offer land loans. We suggest looking up land loans near your location. While it is possible to go with a big company they may have limitations.
We'll walk you through why land loans are a bit more difficult to obtain than mortgages. We can also offer some insights into local and national banks that might be able to help you. The land loan process isn't as easy as the home mortgage process, but it is doable!
We've done plenty of research on how to get a land loan, and considered multiple competitors in their reviews and abilities to provide both a loan and customer service.
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Where do I get a mortgage for a land loan?
If you've ever looked up mortgages for raw land or a land loan online, you might notice that a number of the results you get are explaining what a land loan is. From our experience, most of the results are actually local credit unions and banks. Looking up a home mortgage yields totally different results and has many offers asking you to apply right away from multiple sources both locally and nationally.
Our search lends some truth to the buying process for a land loan: Local companies with roots in the area where you want to obtain a raw land loan are some of the best to go with.
What makes getting a land loan different?
Getting a land loan or lot loan are very different from getting a home mortgage loan. A bank that is offering the loan for a home is benefiting in two ways potentially: If you do pay the entire loan back, they profit off the interest you have paid for likely 30 years. If you don't pay the loan back on time, the bank has the option to take the home and either resell it or rent it out. The basic idea is that the land has desirable improvements, like a home with utilities hooked up is worth far more than undeveloped land.
Are land loan terms different from home loans?
Consider this, buying an undeveloped piece of land is a higher risk for the bank and you because there are many unknowns for the person buying the land. While there are many things you can learn about the land during the inspection period, unexpected costs can come up and make it difficult for the new land owner to make payments. The bank technically owns the land until the land loan is paid off – and believe it or not, banks don't enjoy owning land that doesn't have anything on it.
As a result, and not to sound negative – but no matter who you get a loan with, the interest rate will probably be higher, and you'll have a much larger down payment – sometimes in excess of 40%, to get a land loan – and the loan term will be much shorter than a fairly typical 30 year mortgage.
On the plus side, the loan shouldn't be as big for the same size plot if you are buying one without developed structures or a home – so there's a positive!
The best banks for land loans
Old National Bank
Do you live in Indiana, Minnesota, Wisconsin, Michigan, or Kentucky? Old National Bank may be a great option for you. At the moment, they offer land and lot loans with lot loans up to 5 acres and require a 20% down payment. Land loans are for larger plots of land between 5 and 25 acres.
Minimum down payments are 35% for 5 acres or more. With 250 banks across the midwest, Old National Bank doesn't make for a drive to find a branch should you need one.
Serving Arizona, Idaho, Nevada, New Mexico, Oregon, Texas, Utah, and Washington, this bank also serves a bit of the south. While they don't offer many specifics about rates and time periods up front, they seem to have good reviews for the purpose of land loans in general.
Why is a local bank better for a land loan?
A big national bank typically doesn't have active knowledge of a specific geographic area. A local community bank or credit union knows the area better and can better know the value of the land – as well as have connections locally in the event that you don't pay the loan back.
Big national banks like USAA and Rocket Mortgage also might not even give land loans for a given time – and in the case of Rocket Mortgage, they haven't accepted applications for USDA loans for a couple of years.
How do I better qualify for a land loan?
We've probably made getting a land loan sound difficult. Admittedly, it is not especially easy, but there a few things you can do to put yourself in a better position to get a land loan.
Have a plan for your land
This almost goes without saying, but a bank is going to want to know what you plan to do with your land before giving you a land loan. A home loan is easy enough because the idea is usually to live in the home or rent it out for profit – either way the bank is getting paid back. Undeveloped land is more difficult because the bank assumes, rightfully so, that you'll have to do some serious work to get your and their investment back. Having a business idea in band, anything from a farm to an industrial facility is key to being qualified for a land loan.
Save some cash
You'll need a big down payment to qualify for a land loan. Somewhat thankfully, most banks cap the amount of land you can buy with a loan, so we are more specifically saying that the down payment will be proportionally higher for land than a home. A home with a price of $300,000 needs between 3.5% down to 20% down, which is only $10,500 at the low end. You might be able to put an acre or two for way less than a house – just keep in mind that you'll need a good amount down to qualify.
Ask about timelines
Some banks will expect you to get started on work on the land right away, which is reflected in what is often a shorter term loan. Others will allow you some leeway while you are still paying the loan. Ask the bank about these policies.
Are there any advantages to trying to buy land with a bigger or national bank?
Having had some experience in the area ourselves, we'll tell you this: Bigger banks or national banks have one redeeming quality, and that is their availability for customer service. Having actually worked at a big, national bank, they offer near 24 hour a day, 7 day per week customer service over the phone, though not in person.
For people who wish to own land and have a land mortgage, this might not be an advantage. A bank with tens of thousands of customer service representatives parked at desks around the country probably doesn't “know” you. A bank with a branch or two locally has a familiar face and voice (this writer personally banks with a local bank and loves talking to the same two or three people when calling in) that knows your issues and story better.
The downside? In the event that you need help right away, a local smaller bank might not have available hours. The other side of this coin is that chances are that you won't need help at 10:30PM on a Friday night – as not much can happen with a land loan that can't wait a few hours. Having a fraudulent transaction in your checking account is quite different from talking about paperwork or making a late payment.
So how do you find a local bank?
Search engines and eyes are your friends. While researching for this article, we found numerous websites dedicated to specific communities near us with lists of banks that actively offer loans for land. Most of these banks are in places that have land for sale – which is to say that they probably aren't urban.
Your local bank doesn't likely advertise their program for land loans, unless local TV or fliers come out – so you might not even know that the place offers land loans. While we certainly live in an age where you can find apply for a land loan mortgage online, you might have to make contact with the bank first just to make sure they have them.
One limitation to keep in mind that if you are planning to buy land in a different state (and you don't live in a neighboring state to your land) it might be more difficult to get a land loan from a bank near you. You may want to pursue a bank near the area you intend to buy land and build.
Are there other financing methods besides a bank?
Yes, there are. You do have the option of asking the seller to finance the land sale. This would mean paying the seller themselves for the land over time. Not all sellers will want to do this as many are looking for money up front, but it is worth asking about.
A couple of words of warning – unless you have an especially generous seller, you might expect to pay a higher interest rate to the seller. In order to keep monthly payments low, the seller could also ask to do a balloon payment, which is risky for you. A balloon payment involves smaller payments for a while, with the potential for much larger payments toward the end of the loan to make up for what wasn't paid before. These loans aren't a great idea because if you don't make the larger balloon payments, you risk losing the land.
You might also be able to get a home equity loan, known as a second mortage, to pay for land. A home equity loan uses the difference between your existing home loan payoff and it's value at the time of the loan. The upside? You can get a lower interest rate and get fairly fast access to money. The downside? You are using your current home or property as collateral, so failure to pay it back could result in losing your home. Note that this works best if you've been in your existing home for a while, or the property value has gone up substantially.
How would you finance a land purchase?
We would go in order some priorities. Technically, getting a second mortgage is financing a land purchase because you are borrowing money from a bank. We could choose that first, only if we had enough equity in an existing home and were sure that the land purchase was worth the risk of putting our current home on the line.
Otherwise, we would find a local lender and find reviews about them. We would also ask about loan rates and their entire process. While you might only find a few places willing to do land loans depending on where you live, you can still ask lots of questions about their abilities and processes to make sure you have the right place for you.
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