Who Lends for Buying Land? | askBAMLand

Buying land is an incredible opportunity but it comes with a lot of financial responsibility, which is why you want to be aware of who lends for buying it.

Money for buying land can be lent to you by financial institutions, private individuals, investment groups, and the United States Government. However, the conditions of these loans will be determined based on your finances and your overall land intentions.

Whether you are seeking a loan to buy land to pursue a business opportunity or simply want to become a private homeowner, buying property can be a stressful and strenuous process. For many people, buying land is one of the biggest financial decisions that they will ever make, which can make applying for a loan all the more taxing. Luckily, there are a number of different ways to approach getting a loan for buying land, which can make finding a lender much more flexible. To make the process as straightforward as possible, we are going to take you through all of the different ways that you can get a loan for buying land.

After years of working as a real estate investor, I have had firsthand experience dealing with the various different ways that you can get loans for buying land. In addition, I currently work with a real estate organization that deals with lending money to qualified individuals.

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Land Loans

These days, there are plenty of different approaches that you can take for getting a loan on land which is outside the traditional norm of dealing with a financial institution. There are government programs and real estate groups that offer private individuals the opportunity to receive a loan on land that can help them buy the property that they have always dreamed of.

With that being said, when dealing with loans for a purchase that is as large as buying land, you want to be sure that you know what you are signing up for. There is a lot of personal and financial responsibility tied to buying land and a failure to comply with all conditions of your loan could result in dire consequences.

Before you begin applying for any type of land loan, you should first consider what your current financial situation is and how secure you think your income is. The last thing you want to do is sign up for a loan that is outside of your long-term financial reach, which is why having a well-calculated budget is absolutely essential. No matter what kind of individual or organization ends up lending you money, they are going to want to feel assured that you are able to pay back the loan within the agreed timeframe of your contract.

As you determine the budget for your land purchase, begin creating a financial plan for your loan. You can do this by reflecting on your job security and how much of your income you will be able to allocate to pay off your loan over time. You want to be sure that whatever the conditions, that you are in a financial position to take on such a huge commitment. Let’s dive into the different types of loans for buying land.

Land Loan

One of the most common and traditional ways of getting a loan for buying land is through a financial institution. While dealing with a bank for your loan may be intimidating, you will find that this is still one of the most practical and reliable ways of buying land.

As we mentioned above, having your finances appropriated and your job security determined will be essential when seeking someone to give you a loan for buying land. This will be especially the case when applying for a land loan through your bank, as they will carefully weigh out all of these factors on their own when determining whether you qualify for a loan.

Having a clear and well-developed plan for your land purchase will be reassuring signs to your financial institution that you are organized and dependable, which is why you want to take the time to research and collect as much information on the potential property that you will be purchasing.

A huge boost for getting a loan on your land will be whether or not you are able to put money down on the property. This will give the bank reassurance that you are a dependable buyer and have your finances in order. The more money that you can put on the property upfront, the more likely your bank is to take you seriously and approve your loan. Typically speaking, 20% of the property’s value is a great figure to start with and may even be required by many banking institutions. Whereas having more money upfront will never hurt and will only increase your chances.

However, there are some options for getting a land loan that does not require 20% money down. Some banks ask that you have 10 to 20% - and some even less. What you want to look for are the interest rates that are attached to your loan. You will find that the more money down you have, the lower your interest rates, and having less money down may significantly increase your interest rates, which is why you want to carefully consider the terms of your loan before you commit.

3-F Loan

One of the safest ways of getting a loan for buying land is to utilize a 3-F Loan. This type of loan involves seeking the help of people within your inner circle of family, friends, and fools, as the official title suggests. A much better way to interpret this is to reach out to your close acquaintances.

While a 3-F Loan should always be approached with the same level of seriousness as a land loan from a financial institution, you can take comfort in knowing that you are dealing with people you know. This approach could potentially have much more flexibility and offer more reasonable financial obligations. When dealing with people that you know, you should be able to establish the terms of your loan with more mutual understanding and less pressure.

The best way to approach a 3-F Loan is to track down people within your inner circle that you think are financially capable of lending you money for buying land and also people that you think are dependable for handling such a huge responsibility. With that being said, your family, friends, or acquaintances will expect nothing less from you. If you want these individuals to entrust you with paying them back a potentially very large sum of money, you are going to want to assure them that you are worthy of their time and their money.

Much like with a bank, you want to create a very well-crafted financial plan that you can present to your lender. You should detail all of your finances and give the assurance that you will continue to be able to pay off the loan in the long term. You should also have concrete information about the land that you want to buy so that they can see exactly where their money is going.

Once you have had a sit down with your friends, family, or acquaintances, you should be able to come to terms with a final agreement on your loan. This will likely include creating an official contract that binds you and the individual(s) together for the agreed amount of money needed to buy your land - and the manner in which it will be repaid. However, if you are dealing with highly trusted people, you may end up skipping the contract altogether.

Real Estate Investment Groups (REIG)

A great way of acquiring land without dealing with as much financial pressure is to collaborate with a real estate investment group (REIG). An REIG is a group of real estate investors that work together to acquire properties that are financially profitable and viable. This sort of approach mitigates the financial risk involved with traditional loans, as the financial responsibility is shared by a collective of individuals.

With that being said, real estate groups will likely not want to deal with you if you are simply buying land for your personal private residence. The group will want to support investment opportunities that can benefit the entire REIG, which will involve buying land that is going to make them money.

The types of properties that can pique their interest will vary, as land can be a profitable investment in so many ways, which is why you are going to want to carefully weigh out the logistics and qualities of the property that you are assessing. If the property you are considering is in an ideal location that shows promising market trends, you should not have a hard time convincing the REIG that buying the land will be profitable.

In addition, finding land that has great qualities and profitable resources is another great feature to showcase to the collective. What you want to be aware of when dealing with an REIG is that the long-term vision of the property is in line with your own. If you want to buy property for your own personal use, you may have a more challenging time getting help from an REIG. However, if you are flexible about what ultimately happens to the land and simply want to earn profits, then you may find that working with an REIG is one of the best ways of finding funds for buying land.

Seller Financing

A common way that many people approach getting a loan for buying land is through seller financing. Working with financial institutions can be overwhelming sometimes, which can be a problem for both a buyer and a seller, which is something that seller financing remediates.

The way seller financing works is by having the seller of the land also act as the lender. This is generally approached when an interested land buyer comes to an agreement with a landowner about the acquisition of their property.

The seller can in many ways act as a mortgage lender in this situation by dictating the terms of the loan. This presents some amazing opportunities for both the buyer and the seller, as the agreement between the two parties can be more flexible. In addition, seller financing can also prove to save money for the buyer.

By getting a land loan through seller financing, the buyer does not need to pay the interest rates that are commonly associated with mortgages. This enables the buyer to acquire a property while potentially saving thousands on the overall land costs. With that being said, you can expect there to still be some money down required to make the deal go through.

You should expect most seller financing loans to involve a 20% money down to let the lender know that you are a serious buyer. However, you may find that your loan agreement is even more flexible - with some sellers only asking as little as 5 to 10% money down. Seller financing can be especially feasible when you are dealing with people within your network of friends, family, or acquaintances.

Instead of going for a 3-F Loan, you could implement a similar strategy with seller financing. If you happen to know an individual within your inner circle that is selling land that you are interested in, you could suggest a seller financing loan with them to buy the property. This can be a great alternative to a traditional 3-F Loan, as you will be directly paying back the seller and lender at the same time. If you happen to be dealing with trusted individuals, you should be able to come to an agreement regarding money down and monthly payments that are suitable for both you and the other individual involved.

USDA Direct Home Loan Program

An amazing way of getting a loan for buying land is by utilizing the USDA Direct Home Loan Program. Many people do not realize this, but one of the best ways of getting a land loan is directly through the United States Department of Agriculture. While this government organization usually specializes in farming, they also offer some incredible opportunities for land loans.

The USDA Direct Home Loan Program was created to assist individuals that have low incomes that are not in a financial position to buy land on their own - or qualify for a traditional loan from a bank. This government loan program has helped thousands of people get loans for their land and it is considered one of the best ways of buying property without the financial risks that come with banking institutions.

The reason that the USDA Home Loan Program is such a great way of getting a loan for buying land is that it does not burden the buyer with the same long-term financial obstacles that financial institutions do. A loan through this program does not require that the buyer puts down any down payment on the land before purchasing, which implies that there is zero money down. This is practically unheard of with land loans and is one of the main reasons that the USDA Home Loan Program gets so much praise.

In addition, the interest rate for the USDA Home Loan Program is a mere 2.5% and is much more flexible with payments than traditional loans. The way that your payments work with a loan from this program is that you essentially are allowed to pay what you can afford. When you apply for the USDA Home Loan Program, you will be asked about your monthly income, which is then factored into your monthly payments. Typically, you can expect your monthly loan payments to be 30% of your income, which can vary depending on a number of factors, but it will never exceed 40%.

With that being said, the USDA Home Loan Program is not for everyone. There are some strict guidelines that determine who can apply for this type of land loan - with the most important being your income. This program was designed to help lower-income individuals buy a home that is affordable and will not put them in debt through traditional mortgage loans. This means that unless you are in a very low-income bracket, you will likely not qualify for the USDA Home Loan Program.

Furthermore, a key condition of the USDA Home Loan Program is that you are bound to the locations that the program is available. These locations are generally all in rural areas that are further away from large urban cities. This was intentionally done by the United States Department of Agriculture to encourage more people to live out in the countryside. This can be a major drawback of this loan for some people, as they prefer to live somewhere that is closer to a city environment.


Brittany Melling

Brittany Melling

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.

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