Corder's Corner

Financing Land Purchases

Snagging a piece of land is like unlocking a treasure chest of possibilities – whether you dream of building your dream home, starting a farm, or diving into real estate investments. While dropping cash upfront is the easy route, let’s face it, not all of us have a pot of gold lying around. Fear not! There’s a whole treasure map of financing options waiting to be explored. Get ready to embark on a land-buying adventure with this guide to financing options and top tips for securing that dream plot!

What is a Land Loan?

A land loan is a specialized form of financing created specifically for acquiring raw, undeveloped land. In contrast to a typical mortgage used for buying a home, a land loan is exclusively for land purchase. This encompasses rural and urban properties, whether vacant or prepared for construction.

Land loans are usually more intricate than standard mortgages. Unlike a home loan, land doesn’t act as collateral for the loan, and it’s generally not possible to acquire land without a down payment (most lenders require 20-50% of the purchase price upfront). This is due to the higher risk associated with land loans for lenders compared to conventional mortgages – in case of default, it’s more challenging for lenders to recover their funds.

Different Types of Land Loans

Land loans come in several different options. Which will suit you best will depend on a buyer’s specific needs and what the lender requires.

  • Raw Land Loans—These loans are for a bare piece of ground without any structures. They are the most difficult to obtain and usually require a larger down payment. They also have higher interest rates.
  • Unimproved Land Loans—This one is similar to the previous one. These loans are for land that is more developed than raw land. For example, maybe a lot has utilities on it.
  • Improved Land Loans—Improved land has been developed fully with road access and utilities. Land for these loans is the easiest to finance and typically has lower interest rates and down payments.

Land Loan Sources

  • USDA Loans: If you are considering building a home in a rural area, the USDA provides two loan options. Section 523 loans cater to low-to-moderate-income individuals constructing their own residences, while Section 524 loans allow you to hire a contractor for home construction. Both loans come with 2-year repayment terms and offer low-interest rates.
  • SBA 504 Loans: The SBA extends loans for purchasing and developing land for commercial purposes. These loans require a low-down payment (usually 10%), feature fixed interest rates, and offer long repayment periods (up to 25 years).
  • Lender Loans: Traditional banks and credit unions also provide land loans. If you do not intend to develop the land, this option may necessitate a larger down payment.
  • Home Equity Loans: Homeowners can use their home equity to finance land acquisitions. This choice typically boasts lower interest rates and no down payment requirements, but it might have stricter criteria and potentially put their homes at risk in case of loan default.
  • Seller Financing: In certain instances, land sellers might agree to finance the purchase. This arrangement often involves an initial down payment, with the remaining balance repaid over time at an agreed-upon interest rate. If you opt for this approach, it is crucial to have any legal documents reviewed by a lawyer.

Things to Consider

Realtors preach due diligence. It’s the same with land loans. Before financing the piece of land you may be considering, you’ll want to look into a few things. Additional challenges may arise when trying to secure a land loan. Issues with surveys, zoning regulations, and obtaining necessary permits are a few examples. It’s important to research the area and understand the potential obstacles before moving forward.

Some Tips

  • Research Lenders: Different lenders have varying requirements and offerings for land loans. Explore multiple options to find the most suitable one for your needs.
  • Improve Your Credit: Enhancing your credit score can lead to a lower interest rate and better loan conditions. Prioritize boosting your credit score before applying for a land loan.
  • Save for a Down Payment: Most land loans necessitate a substantial down payment. Initiate early savings to ensure you have sufficient funds for the down payment.
  • Get Pre-Approved: Obtain pre-approval for a loan before searching for land. This will help you determine your budget and be ready to make an offer when you come across the perfect property.
  • Work with Professionals: Buying land can be intricate, so it’s essential to collaborate with experts like real estate agents.
  • Consider Location: Some regions offer more affordable land for sale than others. If you’re looking to buy land on a budget, explore the various options available nationwide.

If you’re interested in purchasing land, visit our website at! We have a team of agents to help you find your next farm or ranch, hunting land, vacation spot, or land to build on! We’re licensed in Montana, Wyoming, Colorado, and North Dakota and can assist with any of your real estate needs!

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