Land Loans in 2026: How They Work and How To Qualify
Land loans can help you buy real estate that doesn’t have a house or other structure built on it, but they’re usually harder to qualify for than traditional mortgages. Lenders often require larger down payments, stronger credit scores and higher interest rates.
Before applying, it’s important to understand how land financing works, what type of property you’re buying and which loan options may fit your goals. We’ll go over the basics of land loans, how they work and what other loan options you may have for purchasing land.
What are land loans?
A land loan — also known as a “lot loan” — is a way to finance real estate that doesn’t have a house or other structure built on it. With these loans, you don’t have to commit to beginning construction on a house soon, the way you would with a home construction loan.
There are several categories of land, and the type you’re considering will impact the type of loan you can get:
- Raw land: Also called “undeveloped” land, this is land with no improvements (such as water and sewer lines or road access) that would help make the property buildable.
- Unimproved land: While similar to raw land, unimproved land may have some basic infrastructure or older structures, but generally doesn’t have all of the water, electric and other utilities you’ll need. This land may have once had a house on it, but it doesn’t any longer.
- Improved land: This type of land has been developed in some way and usually has access to utilities and roads. If it’s ready for building a house, it may also be known as a “lot.”
How do land loans work?
| Land loan | Traditional home loan | |
|---|---|---|
| Repayment period | 2 to 5 years | 15 to 30 years |
| Repayment type | Balloon structure: consistent payments for a period of time, followed by a large payment that pays off the remaining balance all at once | Fully amortizing: consistent payments that don’t change over time |
| Qualifications | Must meet lender guidelines, which follow FDIC guidelines | Must meet the minimum mortgage requirements for conventional or government-backed loans |
Like a traditional mortgage, land loans are secured by the property they purchase. This means that if you can’t make your loan payments, you could lose the land to foreclosure.
- Repayment: Land loans require you to make a down payment, and you’ll repay the loan over time. However, unlike traditional mortgages, land loans typically have short repayment periods, ranging from two to five years. Because of this, they often come with a large balloon payment at the end.
- Qualification: Land loans don’t fall under the same rules as traditional conventional loans, which must follow guidelines set by Fannie Mae and Freddie Mac. This gives a little more flexibility when it comes to qualifying, but it also means that you may have to accept riskier loan terms.
- Lenders: Land loans can come from banks or credit unions, specialty lenders or government programs. However, they may be harder to find than a traditional mortgage because not every mortgage lender offers them.
How to qualify for a land loan
You’ll typically need a higher down payment and credit score to qualify for a land loan, compared to traditional mortgage requirements. Usually, the more developed the property, the lower the down payment you’ll need.
Conventional land loan requirements
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Down payment minimum: 15% to 35%
The Federal Deposit Insurance Corporation (FDIC) sets minimum down payment requirements for land loans, though individual lenders may decide to set more stringent standards. The minimum down payments required by FDIC standards are:- Raw land: 35%
- Unimproved land: 25%
-
Improved land: 15%
-
Debt-to-income (DTI) ratio: 30% to 40% maximum
The maximum DTI ratio is another qualification factor that varies lender to lender, but in most cases, you won’t be a good candidate for a loan unless your DTI is 43% or lower.
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Credit score minimum: 700
The FDIC doesn’t have a hard minimum credit score to qualify for a land loan — it’s up to lenders to decide. However, lenders commonly require a score of at least 700. In some cases, a score in the high 600s could work; otherwise, you’ll have to increase your score to the lower 700s.
Pros and cons of land loans
Pros
- You can build your dream home. Instead of buying an existing home, buying land lets you build a new home with your tastes and needs in mind.
- You can build on your own time. Some land loans allow you to hold on to the property for a number of years until you’re ready to start construction.
- You can pay closing costs only once. Single-close construction loan options let you finance your land purchase and the cost of new construction without going through a refinance.
Cons
- You’ll face tougher qualifying criteria. Getting a land loan is often harder than a traditional mortgage. You’ll need a better credit score and a higher down payment to qualify.
- Your land may not be buildable. You’ll need to ensure that the property can support a home in the future if you’re planning to build.
- You may find it harder to sell. Fewer buyers are looking for raw land, which can make land difficult to sell and convert into cash.
- You’ll have fewer loan options. Not all lenders offer land loans, so you may need to shop around longer to find a good option.
How to finance land: Which is the best option for you?
You don’t have to use a land loan to purchase land, because there are many alternative options out there. However, many — though not all — of them require you to build a primary residence on the land.
| Loan type | Best for… | Requires building a home? |
|---|---|---|
| Conventional land loan | Buyers with strong (700+) credit and a large down payment | No |
| FHA loan | Borrowers with lower credit scores (500 to 580+) who are planning to build a primary residence on the land | Yes |
| VA construction loan | Eligible veterans and military borrowers buying land to build a home they plan to live in | Yes |
| Home equity loan | Homeowners who want a lump sum with fixed payments to purchase land | No |
| Home equity line of credit (HELOC) | Buyers who want flexible access to funds for a land purchase or phased building project | No |
| USDA loan | Low- to moderate-income borrowers purchasing rural land for a primary residence | Yes |
| SBA loan | Business owners purchasing land for commercial or business use | No |
| Seller financing | Buyers who may not qualify for traditional financing | No |
| Land contract | Buyers who are willing to delay receiving legal title in exchange for easier approval | No |
1. Conventional land loan
While not every lender offers land loans, you’ll be able to find many banks and credit unions that do offer them. You may have the best luck with local lenders who understand the value of the land in your area. There are also specialty lenders, like farm credit organizations, that offer land loans.
2. FHA loan
The Federal Housing Administration (FHA) has loan programs to help finance the purchase of land. However, you can’t purchase land you intend to leave vacant — you’ll have to commit to building a home on the property or find land with a house already on it — and you’ll have to live in it as your primary residence.
The FHA construction loan program is open to people with a credit score as low as 500 and a 10% down payment. You’ll close once, and the FHA construction loan will convert to a traditional FHA mortgage when the project is complete.
3. VA loans
VA loans are for eligible military service members and veterans and are guaranteed by the U.S. Department of Veterans Affairs (VA). You have two main options for financing land:
- The VA construction loan program: This lets you use a VA loan to buy land, but only if you’re going to later build a house on it. The land will need to be improved, meaning it can be accessed via roads and can be hooked up to basic utilities. The program is only open to people who want to fund a new build with a VA loan and will also use a VA loan to finance their new home after construction is complete.
- The VA farm loan program: This is for borrowers who want to purchase farm land that already has a home built on it.
4. Home equity loan
If you own a home with a significant amount of equity, you may be able to take out a home equity loan and use the proceeds to buy land. Equity is the portion of your home that you own outright. You can calculate how much equity you have by subtracting what you owe on your mortgage from your home’s value.
With a home equity loan, you’ll receive a lump sum up front and pay it back over time, usually at a fixed rate. You’re not limited in what you can use the money for. So, if you have enough equity, you may qualify for a large enough loan to buy a parcel of land.
If the equity in your home isn’t enough to buy land outright, you may be able to use your home equity loan to make a down payment on a land loan.
See current home equity loan rates.
5. Home equity line of credit (HELOC)
Home equity lines of credit (HELOCs) are another type of loan that leverages the equity you have in your home. Instead of getting a lump sum, you have a credit line that you can draw from over time — up to a set limit. At the end of your draw period, you’ll lose access to the HELOC funds and start paying back the amount you borrowed, with interest that usually accrues at a variable interest rate.
See current HELOC rates.
6. USDA loan
USDA loan programs, backed by the U.S. Department of Agriculture (USDA), offer financing for buying land if the borrower is planning to build a home. Only low- to moderate-income families are eligible, and the land must be in a qualified rural area. Unlike traditional USDA mortgages, these loans are only available with five-year terms. The USDA also offers single-close construction loans that will finance the land purchase and construction, then convert to a long-term mortgage.
7. SBA loan
If you’re looking to buy land for a business property, you may be able to use a small business loan. Loans backed by the U.S. Small Business Administration (SBA) allow borrowers to finance raw land and the costs of constructing a commercial building. With an SBA 504 loan, you would need to make a 10% down payment. A bank or credit union will finance half of the project, and a certified development corporation (CDC) will contribute the remaining 40%, which is guaranteed by the SBA. Loan terms of 10, 20 or 25 years are available.
8. Seller financing
Seller financing, also known as owner financing, is when you get a loan from the seller of the property instead of a traditional lender. You can also use seller financing for part of the purchase price, rather than all of it. This can be a good option when a traditional loan isn’t available, and it means you won’t have to meet the qualification requirements that come with a mortgage.
That said, any loan that doesn’t fall under traditional requirements can come with risky loan features, because it’s not under the purview of many of the consumer protection laws that apply to mortgages.
9. Land contract
A land contract is similar to seller financing, except that the seller will keep the title in their name until you’ve completely paid off the home. If you fall behind on your payments, the seller doesn’t have to pursue foreclosure; they simply retain ownership, and you will lose the land, your down payment and any other payments you made toward the purchase.
This makes a land contract even more risky, because you won’t get the benefit of any of the protections built into the traditional mortgage lending process — not even foreclosure.
Despite their risks, land contracts haven’t been outlawed because they serve many people well. Eighty-seven percent of people in a Pew survey on land contracts reported they had a positive experience, and 88% successfully paid off the contract and took ownership of the home.
Questions to ask before buying land
Is the land buildable?
Some lots can’t legally support a home or structure because of zoning restrictions, flood risks, environmental regulations or failed soil tests. Check with the local planning department before buying.
What utilities are already available?
Find out whether the property has access to electricity, water, sewer or septic, internet service and natural gas. Adding utilities to raw land can be very expensive, so you need to know what utilities are already available.
Does the property have legal road access?
Some rural parcels are landlocked or only accessible through easements on neighboring property. Verify that you have permanent, legal road access before purchasing.
What are the zoning rules?
Zoning determines what you can build and how the land can be used. It’s not uncommon for people to buy rural land to build a home on, only to later find out that the property is zoned for recreational uses only.
Has the land passed a perc test?
If the property will need a septic system, a percolation test determines whether the soil can safely support one. Without it, building may be difficult or impossible.
Are there HOA fees or deed restrictions?
Some vacant land communities have homeowners associations, building deadlines or architectural requirements that can increase costs and limit what you’re able to do.
Is the land in a flood zone or an environmentally protected area?
Floodplain restrictions, wetlands regulations and protected habitats can affect financing, insurance costs and your ability to develop the property.
How much will property taxes and insurance cost?
Vacant land may still come with meaningful annual expenses, especially in rapidly growing areas or high-risk regions.
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