Loan to value, or LTV, on a land loan is the loan amount divided by the land’s value. Most lenders cap raw land at 50 to 65 percent LTV, which means a 35 to 50 percent down payment. This guide explains how land LTV works, why it is lower than for homes, and how to fund the gap.
Key Takeaways
- LTV is the loan amount divided by the appraised land value.
- Raw land loans usually cap at 50 to 65 percent LTV.
- Lower LTV means a bigger down payment on land.
- Improved lots can reach 70 to 80 percent LTV.
- An equity partner can replace the down payment entirely.
What is loan to value on a land loan?
Loan to value is the size of the loan compared to the value of the land. If you borrow $60,000 against land worth $100,000, your LTV is 60 percent.
Lenders use LTV to measure risk. A lower LTV means you have more of your own money in the deal, so the lender is better protected if you default. The formula is simple: loan amount divided by appraised value, multiplied by 100. The lender always uses the appraised value or the purchase price, whichever is lower, so a great deal does not raise your LTV in your favor.
Why is land LTV lower than for a house?
Land LTV is lower because vacant land is riskier collateral than a house. It earns no income, costs money to hold, and is harder to resell quickly.
- Land produces no rent and no cash flow to support the payments.
- Vacant parcels sell slower than homes in a downturn.
- Values swing more on raw land than on built property.
- There is no structure to add value if the lender has to foreclose.
Because of that risk, a bank that lends 80 to 97 percent on a house will often lend only 50 to 65 percent on raw land. The gap between those numbers is the extra cash you must bring to the table, and it is the reason many land deals never close.
Lenders also factor in your plan for the land. A buyer who will build soon looks safer than one who will hold a vacant parcel for years, so a construction-ready borrower can sometimes earn a higher LTV than a pure land speculator on the same parcel.
What LTV can you get on raw versus improved land?
LTV depends on how developed the land is. The more finished the parcel, the higher the LTV a lender will offer.
- Raw land with no utilities or road access: 50 to 65 percent LTV.
- Unimproved lots with some access: 60 to 70 percent LTV.
- Improved lots with utilities at the street: 70 to 80 percent LTV.
- Construction loans: based on the finished value, often higher.
A buildable lot in a platted subdivision gets far better terms than a remote parcel with no road frontage. Local banks and credit unions often offer better land LTV than national lenders because they know the local market and keep the loan on their own books. Buyers can see how different lenders set land LTV and rates on Land Funding Partners before they apply.
Some specialty lenders and land programs will go higher on improved lots, but they charge for it with a higher rate or extra fees. The cleanest way to know your real number is to get a written term sheet that states both the LTV and the rate for your specific parcel.
How do you calculate land LTV?
Calculate LTV in two steps: divide the loan by the appraised value, then multiply by 100.
- Get the appraised value of the land, for example $120,000.
- Decide the loan amount you need, for example $72,000.
- Divide the loan by the value: 72,000 divided by 120,000 equals 0.60.
- Multiply by 100 to get a 60 percent LTV.
At 60 percent LTV on a $120,000 parcel, you finance $72,000 and bring $48,000 of your own money. That down payment is the gap most buyers struggle to fill, and it grows fast on bigger deals.
Change the value and the math follows. On a $60,000 parcel at 55 percent LTV, the loan is $33,000 and you bring $27,000. On a $250,000 parcel at 65 percent LTV, the loan is $162,500 and you bring $87,500. The down payment scales with both the price and the cap.
What is the difference between LTV and down payment?
LTV and down payment are two sides of the same number. They always add up to 100 percent of the value.
If a lender offers 65 percent LTV, your down payment is 35 percent. If the cap is 50 percent LTV, your down payment jumps to 50 percent. So when a land lender quotes a maximum LTV, you can read your minimum cash down straight from it. On a $200,000 parcel at 60 percent LTV, the loan is $120,000 and your down payment is $80,000.
This matters when you shop lenders. A lender advertising a low rate but a 50 percent LTV cap can cost you more cash up front than a slightly higher rate at 65 percent LTV. Always compare the LTV and the rate together, not one in isolation.
How does LTV affect your land loan rate and approval?
A lower LTV usually earns a lower interest rate and a faster approval. More of your own money in the deal means less risk for the lender.
Push the LTV higher, where a lender even allows it, and you pay a higher rate to offset the added risk. Many land lenders also set a minimum loan amount and a maximum acreage, so a large rural parcel can be harder to finance at any LTV. If the appraisal comes in below your contract price, your real LTV rises and the lender may cut the loan, forcing you to bring more cash to close.
How can you raise your land LTV?
You cannot force a lender past its cap, but you can present the parcel in a way that earns the higher end of the range.
- Choose a lot with road access and utilities, which lenders score as lower risk.
- Bring a recent appraisal that supports your value.
- Use a local bank or credit union that knows the area.
- Add a co-borrower or extra collateral to strengthen the file.
Even with every advantage, raw land rarely passes 65 to 70 percent LTV. That structural ceiling is why many investors stop chasing LTV and switch to a funding model that does not use it at all.
How do you cover the land down payment gap?
The down payment gap on a land loan is large, but an equity partner can cover it or replace the loan entirely. Serious Land Capital covers the full purchase price and the closing costs and takes title, so LTV stops mattering to the investor. There is no loan, no LTV cap, and no monthly payment. The partner earns a profit split at sale, usually 50/50 to 70/30.
Based on Serious Land Capital’s underwriting of more than 1,200 land deals, the most common reason a buyer cannot close is the down payment gap a low LTV creates, not the interest rate. Because Serious Land Capital brings more capital than a typical land funding partner, it can fund full-price acquisitions that a bank LTV cap would block. Buyers who want to weigh a low-LTV land loan against an equity partnership or seller financing can compare the structures on Land Funding Partners before they commit.
The lesson is simple. On a land loan, the LTV cap sets your cash down, and on raw land that cap is low by design. Knowing the number before you make an offer keeps you from signing a contract you cannot fund.
People Also Ask
What is a good LTV for a land loan?
For raw land, 50 to 65 percent LTV is normal and considered good. Improved lots reaching 70 to 80 percent LTV are stronger. A lower LTV means a larger down payment but easier approval.
How much down payment do I need for land?
Most land loans require 20 to 50 percent down. Raw, remote parcels sit at the high end of that range. Improved lots with utilities at the street need less cash down.
Does LTV affect land loan interest rates?
Yes. A lower LTV usually earns a lower interest rate because the lender takes on less risk. A high LTV land loan, where a lender allows one, carries a higher rate.
Can you get 100 percent financing on land?
Banks rarely offer 100 percent LTV on land. The realistic paths to zero cash down are seller financing or an equity partnership that funds the full purchase price.
How is land value determined for LTV?
A licensed appraiser sets the value using recent sales of comparable parcels, adjusting for size, access, utilities, and zoning. The lender uses that appraised value, not your purchase price, to calculate LTV.
What is combined loan to value?
Combined loan to value, or CLTV, adds up every loan against the property divided by its value. It matters when you stack a second loan, such as a seller carryback behind a bank loan.
