Loans for Purchasing Land – 3 Options for Buyers

Farm Land

Loans for purchasing land might not be at the top of your mind until you find your dream piece of property.  Whether you see it in a listing or discover it randomly while driving, putting eyes on the right piece of land can give you a jolt of excitement and bring on daydreams of ownership.  If you decide to move forward and buy your land find, there are a few things to consider.


One of the first things is whether you can afford to pay outright for the land or whether you will need financing.  If you don’t have enough cash in hand, doing your research and finding out about the ins and outs of loans for purchasing land is essential.  Here at Adirondack Premier Properties, our expert agents have walked many clients through the process to procure the land of their dreams.  Read on for tips to navigating the process of getting a purchasing land loan.


Types of Real Estate Loans

In real estate, there are multiple types of loans that are available to purchase land or homes. Getting to know the different financial tools that are out there can help you understand which type of loan you need.  In general, different types of loans that are used to finance various real estate transactions include:

  • Mortgage – to purchase a home
  • Construction Loan – to build a home (combined materials cost and purchasing land loan)
  • Land Loan – to purchase land only


Types of Loans for Purchasing Land

If you are interested in purchasing land with a loan, be prepared to plan ahead.  What type of land loan is available to you will depend heavily on how improved the land is. There are three types of loans for purchasing land that are categorized as follows: raw, unimproved, or improved. Each of these types of land purchasing loans is specific to a unique situation and will have its own particular quirks to to loan eligibility, application and approval.   The three types of purchasing land loans are:


1. Raw Land Loan

In order to qualify as a raw land loan, the lot must be a completely undeveloped area that includes no electricity, sewers or roads. While this land is generally more affordable than more developed land, potential buyers should know that interest rates as well as down payments will be substantially higher with this type of land purchasing loan.


2. Unimproved Land Loan

This land loan type targets land with minor developments where some utilities and amenities are in place. This loan is not as risky for the borrower or the bank, but can still be difficult to obtain. In order to receive this style of land loan, do your best to be prepared with the following information at the time of application:

  • a detailed plan of what the land will be used for,
  • a large down payment of 20%  or more, depending on the bank
  • proof of a strong credit score.

This type of purchasing land loan is generally less risky resulting in interest rates and down payment amounts that are commonly not as sky high as a raw land loan.


3. Improved Land Loan

Improved land loans are offered for land or lots that have access to roads, electricity, and water. The purchase price of this type of land is generally more expensive as it is has more substantial development and is considered to be more valuable. This more extensive development can lead to a lower interest rate or down payment when compared to raw land or unimproved land loans.


However, it can still be hard for lenders to determine improved land’s worth as there are no collateral buildings.  Traditional mortgages assess worth by factoring in completed structures which are variables that are absent from the improved land appraisal process.  This uncertainty leads to a requirement for borrowers to provide a significant down payment as well as a good credit score. Therefore, the process to obtain an improved land load can be similar to that of applying for a mortgage.


General Qualifications To Obtain Land Purchasing Loan

Purchasing land loans are considered to be generally risky for both the borrower and the lender. If you are considering loans for purchasing land to fund your next lot or land buy, make sure you meet these general guidelines before you apply for a land purchasing loan:

  1. Excellent Credit Score – Most land loans will require the borrower to have a 720 or above credit score.
  2. Low Debt To Income Ratio – With land loans being risky, lenders are less likely to give a loan to someone who has a high debt to income ratio.
  3. Plan For Land Use – Are you building a home, expanding your parcel, or using it for a camp? Having a detailed plan and evidence that you have thought things through can benefit you greatly when meeting with the lender.
  4. Compliance with Zoning and Land Use Restrictions – Similar to what you plan on using the land for, demonstrate to the lender that you are familiar with zoning and land use restrictions and plan to comply. Failing to research this ahead of time could cost you a lot of time and money.  If the property is zoned as residential, you may not be able to create the commercial business space you planned.  Likewise, if the property is commercial, it may have a restriction on what type of business or structures can be built.

For any borrower looking to apply for loans for purchasing land, the most important thing to focus on is being prepared. Your hard work and readiness will help streamline the application process.  Getting your loan locked in more quickly can help close your real estate transaction more quickly too.


When you find your dream property, it can be tempting to jump right in to the buying process without doing your homework.  We recommend starting with considering the different types of land purchasing loans and required qualifications detailed above.  Also, call one of our Adirondack Premier Properties agents today to get expert land purchasing loan advice and a professional to help guide you through the buying process.

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