A land loan is a sort of financing used to purchase a parcel of land. If you want to acquire a plot of land on which to build a house, you can get a land loan. You can also use this loan to purchase land for commercial purposes. The type of loan you take out and how easy it is to qualify for will be determined by where you purchase land and how you want to utilize it. Let us look at how a loan for land purchase works and the best bank for a loan for land purchase with a reasonable interest rate in this post.

What are Loans for Land Purchases?

You’ll probably require a land loan if you buy land rather than an existing house since you plan to build from scratch. This loan can be used to fund the purchase of a large plot of land, whether for residential or commercial reasons.

A loan for the purchase of land is often a more complicated sort of loan than a regular mortgage. For starters, there is no home to provide as collateral for the land loan, and you cannot (typically) acquire land with no money down. Other land loans are meant to allow various uses for a land parcel.

How Do Loan for Land Purchases Work?

In general, a land purchase loan functions similarly to a regular mortgage. If you qualify for this type of loan, your lender will provide you with funds to purchase a large plot of land of your choice. You will repay them with interest over the next several years or decades.

But because land loans are riskier for lenders, getting a land loan can be more complicated than getting a regular mortgage. As a result, applicants must demonstrate an excellent credit score (700 or more) and explain how they intend to use the land.

Borrowers can also point out things about the property that need to be checked, like zoning, land use restrictions, surveyed boundaries, and access to utilities. These indicators will help lenders determine how hazardous the loan is. After all, after the variables have been considered, the rates and terms of the land loan can be approved. Land loan interest rates are often higher than regular mortgage interest rates, but the cost can be reduced with a solid credit score and a low debt-to-income ratio.

The Benefits and Drawbacks of Land and Lot Loans

You’ve probably recognized certain advantages and disadvantages if you’ve contemplated asking for a loan to purchase land. Let’s review some of these positives and negatives and see how they apply to your unique needs and financial circumstances to make your selection easier.


If you want to build a house or a business, there are numerous advantages to applying for a land loan. The most significant advantage is the ability to design and build the home of your dreams. If you want to use the land for business, it might also give businesses a chance to take advantage of new areas. If you have a plan, are creative, and have patience, a land loan is a great way to build a home or business.


Knowing the pros and cons of getting a land loan is essential. When there isn’t a house to serve as collateral, for example, a land loan can be riskier for lenders, making many lenders less reluctant to lend to borrowers. There is also the possibility of a larger down payment and higher interest rates regarding financing.

Because it is a new construction project, there is also the chance of unforeseen issues, such as failing to complete the house construction. A standard mortgage may be a better alternative for some purchasers and provide a more uncomplicated transaction.

How to Get a Loan for Land Purchase

Suppose you want to secure a loan for a land purchase. In that case, it’s usually easier to do so through a community bank with a reasonable interest rate or a credit union near the land you want to buy. Depending on what you plan to do with the land, you may have different loan options.

#1. Primary residences

You can get a USDA loan if you want to build your main home in a rural area. USDA loans and construction loans are for families with low to moderate incomes. They offer a low-interest rate depending on the circumstances. Borrowers may obtain a loan for land purchase with no down payment.

#2. Commercial properties

If you want to use a land loan for commercial reasons, you can qualify for an SBA 504 loan. The United States Small Business Administration (SBA) makes SBA loans available to business owners looking for funding to help purchase land. The interest rate and term of an SBA loan for land purchase may differ, but repayment terms typically range from 10 to 25 years.

Other Land Purchasing Options

If you want to buy land but are hesitant to take out a land loan, explore these other choices that might be a better fit for your circumstances.

#1. Home equity loan

Home equity loans differ from land loans because they might be a better option for some people. They work like a “second mortgage” and let you use some of the equity you have built up in your current home. They don’t require a down payment, and because your home secures the loan, they can usually lock in a lower interest rate regardless of what you intend to do with the land.

#2. Seller Financing

Seller financing may also be appealing to some borrowers. Seller-financed land deals are also known as land contracts. These are real estate contracts where the seller acts as a lender and directs the mortgage process rather than a financial institution or lender.

Best Loan for Land Purchase

Because land loans differ from regular mortgages, they can be more challenging to obtain – but you are not without options. Here are a few options for financing your land purchase.

#1. Bank or credit union loan

While not every lender provides land loans, numerous banks and credit unions provide low-interest loans for land purchases. Land loans are also available from specialized lenders such as farm credit organizations. Banks and credit unions may provide various schemes for raw and rehabilitated land.

#2. Government land loan programs

The FHA and the VA have land loan programs to assist with purchasing land and, ultimately, a new home.
The Federal Housing Administration-backed FHA construction loan program is available to people with credit scores as low as 500 and a 10% down payment. When the project is finished, the FHA construction loan will convert to a standard FHA mortgage.


Home equity lines of credit (HELOCs) are other loans that use your home’s equity as collateral. Instead of a lump sum, you receive an account from which you can withdraw funds up to a certain maximum over time. At the end of your loan term, you’ll begin repaying the amount borrowed plus interest; however, keep in mind that these loans frequently have to change interest rates. A HELOC may be used to make a down payment on a land loan.

#4. USDA loan

The USDA loan program, supported by the United States Department of Agriculture, provides finance for the purchase of land if the borrower intends to build a home. Only low- to moderate-income families are eligible, and the land must be located in a designated rural area. Unlike typical USDA mortgages, these loans are only accessible for two years. The USDA also provides single-close construction loans, which finance the purchase and development of land and subsequently convert to a long-term mortgage.

#5. SBA loan

If you want to buy land for a commercial facility, you might be eligible to use a small business loan. Small Business Administration (SBA) loans can be used to pay for undeveloped land and building costs for a commercial building. As the business owner, a 10% down payment is required for an SBA 504 loan. Half of the money for the project will come from a bank or credit union, and the other 40% will come from a certified development corporation (CDC), which the SBA will back. There are loan terms of 10, 20, and 25 years available.

Best Bank Loans for Land Purchase

Because a loan for a land purchase typically has a higher interest rate than a mortgage for a ready-built property, it’s a good idea to study and compare numerous lenders and loan programs before deciding on one.

Here are some of the best bank loans for buying land:

#1. Old National Bank

Old National Bank provides loans in Indiana, Minnesota, Wisconsin, Michigan, and Kentucky. Financing packages are divided into two categories based on the acreage of the property you wish to purchase.

  • Lot Loans, which demand a 20% down payment, are available to fund land purchases of up to 5 acres.
  • Old National Bank provides land Loans to finance land purchases ranging from 5 to 25 acres.

For land larger than 5 acres, the required down payment is 35%. Both land and lot loans have different payback terms and interest rates. The lot and land financing are available for improved and unimproved land, and there is no pressure to build right away.

#2. WaFd Bank

WaFd Bank serves the states of Arizona, Idaho, Nevada, New Mexico, Oregon, Texas, Utah, and Washington with banking services. You can acquire financing for renovated land up to $700,000 without having to construct it immediately.

#3. California Bank and Trust 

California Bank and Trust were founded in California and give out a loan for land purchases. The bank offers a variety of loans and can help pay for up to 60% of the price of the land.

#4. Atlantic Union Bank

Atlantic Union Bank, based in Virginia, provides loans for land purchases for both undeveloped land and residential lots. You can also fund the construction of your dream home with a separate construction loan. However, their website does not provide services such as a loan calculator, a loan for land purchase, interest rate recommendations, or down payment information.

#5. Clear Mountain Bank

Clear Mountain Bank serves customers in northern and central West Virginia and western Maryland. Land loans are available for unimproved land for recreational uses and residential properties for future development.

Financing up to 90% of the purchase price of residential lots is available. Loan information is available via their website’s loan application section, over the phone, or at one of their physical bank offices.

#6. Alpine Bank

Alpine Bank provides financial services in Colorado. Loans for both lots and new buildings are available, with a maximum loan-to-value of 75% on upgraded land. Their website does not provide lending specifics or information on monthly installments. You can inquire online, request additional information by email or phone, or visit one of their bank offices.

What is the best loan to buy land?

Seller financing, local lenders, or a home equity loan are the best ways to finance a land purchase. If you are purchasing a rural property, find out if you qualify for a USDA-subsidized loan.

How long can you finance land?

Compared to the conventional 15- and 30-year periods offered on a home mortgage, land loans are frequently short-term, two- to five-year, followed by a balloon payment. Longer terms are available in some situations, particularly if you want to build a house on the land.

Is it reasonable to buy land using a loan?

Paying in cash gives you a negotiation advantage because you won’t have to wait for mortgage approval or documentation and can close sooner. It’s simpler for you because you won’t have to deal with the paperwork that comes with working with mortgage lenders. You’ll also own the plot fully, with no debts to anyone.

Do banks give land loans?

Banks in the nation provide plots or land loans to qualified candidates. The loans can purchase residential land to build your dream home. They are offered at attractive rates and can be repaid in manageable EMIs over a maximum repayment period of 25 years.

How much loan can we take on land?

For example, one lender may help you finance up to 85% of the cost of developed land or 70% of the raw land cost. Remember that the amount you can borrow is directly proportional to your creditworthiness, the amount of cash you have on hand, and the amount you intend to put down.

Can I take a personal loan to buy land?

While purchasing a property with a personal loan is legally feasible, it may not be as advantageous as a typical mortgage. Why? Personal loans have higher interest rates than home loans. As a result, obtaining a personal loan to buy a property may result in significantly larger monthly payments.

Does land loan save tax?

According to the Income Tax Act, if you buy a plot on a plot loan to build a house on the plot, you can get a lower interest rate on the plot loan. This is advantageous because you can avoid paying a high-interest component on your total repayment.


A land loan might give you a blank canvas of real estate to work with, whether you want to build a house or develop commercial property. However, these land purchase loans often require substantial down payments and may charge higher interest rates, depending on how developed the land being acquired is. Before buying land, go over all your choices, including construction loans and seller financing, to ensure you’re getting the best deal possible.


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