When you want to buy land, you cannot just use a regular home mortgage. Land purchases require a specific type of loan, and the right one depends on what kind of land you are buying and what you plan to do with it. Here is a clear breakdown of the main loan types available for land buyers.
Raw Land Loans
A raw land loan is for property that has no roads, utilities, or structures on it. These are the hardest loans to get because banks see raw land as the riskiest type of real estate. You will usually need 30% to 50% down and should expect higher interest rates. Loan terms are typically 5 to 15 years, which is much shorter than a 30-year home loan.
Improved Land Loans
If the land already has some improvements like road access, water, or sewer connections, it qualifies as improved land. Lenders see this as less risky, so you may get a lower down payment requirement of 20% to 30% and slightly better interest rates. Community banks and credit unions are the best places to look for these loans.
Construction Loans
If you plan to build on the land right away, a construction loan covers both the land purchase and the building costs. These are short-term loans that convert to a regular mortgage once the building is done. You will need detailed building plans and a contractor lined up before the bank will approve you.
Seller Financing
Seller financing is not technically a bank loan, but it is one of the most common ways people buy land. The seller lets you make payments over time, often with more flexible terms than a bank would offer. This can work well if you have a smaller down payment or if your credit is not perfect.
Equity Funding as an Alternative
If you want to avoid loans entirely, consider working with an equity funding partner. Equity Funding Partners work with specialized land funding companies that purchase the property outright and split profits after sale. At Serious Land Capital, we cover the purchase price, closing costs and take title, while you focus on finding deals and potentially managing the sale process. Profit splits typically range from 50/50 to 70/30.
Visit Land Funding Partners for a full comparison of these loan types and to find the best fit for your situation. The bottom line is that your loan type should match the land type and your plans for the property.
