Best Banks for Land Loans: Rates, Terms, and Requirements

Finding the right financing for a plot of land can be a significant hurdle, especially since lenders often require down payments between 20% and 50%. This guide is designed to help you navigate the process by comparing the best banks for land loans, outlining their typical rates, terms, and credit score requirements. We will break down everything you need to know to secure financing for raw, vacant, or rural land. For those who find the traditional lending route too slow or restrictive, it’s helpful to know about alternative solutions. Steve Daria and Joleigh are real estate investors and cash land buyers. They offer fast, as-is deals that avoid bank delays. We’ll explore all your options to help you find the best banks for land loans or decide if a direct sale is a better fit. To get personalized advice on your specific situation, book a free discussion with our experts today.

What is a land loan, and how does it work?

After application, the lender arranges an appraisal and survey before underwriting and finalizing your loan. 

Loan repayments are typically structured as monthly installments; however, certain loans may feature shorter terms or necessitate a final balloon payment. 

Ultimately, it’s a tool for securing property before you are ready to build. 

This financing works by having you make consistent payments over a set period until the debt is fully paid off.

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What types of land can be financed through a land loan?

A land loan can finance several different types of property, each with its own set of rules and requirements. 

The main categories include raw land, which has no utility access or improvements, and unimproved land, which may have some basic site clearing but still lacks utilities. 

Improved land, or finished lots, are the easiest to finance as they already have access to essentials like water, electricity, and roads. 

Many lenders also offer financing for agricultural or rural land intended for farming, as well as recreational land for hunting or camping. 

Finding the best banks for land loans often depends on the property type, as lenders view an improved infill lot in a subdivision as far less risky than a remote, raw parcel. 

Banks will always evaluate zoning, road access, and soil conditions to determine eligibility and loan terms. 

Down payments reflect this risk, often being higher for raw land and lower for improved lots ready for construction. 

Some lenders may even require a clear building plan and timeline before approving the financing.

Which banks are known for offering competitive land loan rates?

1. Local Community Banks: These banks often offer competitive rates because their underwriters have deep knowledge of the local real estate market and may offer more flexible qualifying criteria. Their familiarity with area land values and zoning can lead to smoother appraisals and a personalized loan process from start to finish.
   
   
2. Credit Unions: As member-owned institutions, credit unions frequently provide lower interest rates and reduced fees, typically saving members $1,000–$4,000 in closing costs. Because they prioritize serving their members over generating profits, they can be a great source for affordable land financing with favorable terms.
   
   
3. Farm Credit System Lenders: These specialized lenders are experts in financing rural and agricultural land, offering unique loan products and competitive rates tailored to farm or recreational properties. Their expertise in appraising large, undeveloped tracts makes them a top choice for anyone purchasing land outside of suburban areas.
   
   
4. Regional and National Banks: Larger banks often have the resources to handle complex land deals and may offer construction-to-permanent loan packages that streamline the building process. While their down payment requirements can be strict at 20%–50%, they provide a wide range of financial products, making them a key part of finding the best banks for land loans.
   
   
5. Online Lenders: More online lenders now offer land loans through simple digital applications. Their streamlined operations can sometimes translate into competitive rates, though it is crucial to verify their experience with your specific type of land purchase.

What are the common fees associated with getting a land loan?

When getting a land loan, you should budget for several fees beyond your down payment, which often total thousands of dollars. 

An origination fee costs $500 to $1,500, while a land appraisal costs $500 to over $1,200, depending on the property’s size. 

You will also need a land survey to verify boundaries, which typically costs between $600 and $2,500. 

Additionally, title search and insurance fees, ranging from $500 to $2,000, are required to ensure the property has a clear title. 

The best banks for land loans will provide a detailed estimate that includes not only the loan amount but also underwriting fees, county recording charges, and attorney or closing service costs. 

Be prepared for underwriting and processing fees of $300 to $800, plus another $500 to $1,500 for legal and closing services. 

Finally, you will need to cover prepaid items, such as interest that accrues before your first payment and property taxes. 

These closing costs are separate from the higher interest rates and significant down payments of 20% to 50% that are typically associated with land financing.

Can I use a land loan to build a home later?

1. Buying Land Now to Build Later: Yes, a land loan allows you to purchase property now and build later, giving you time to plan and save. It separates land purchase from construction financing but usually requires a higher down payment, typically 20% to 50%.
   
   
2. Converting to a Construction Loan: When you’re ready to build, you’ll need a construction loan. This can be refinanced with your land loan into a single mortgage. The best banks for land loans often provide streamlined construction-to-permanent financing to simplify this process.
   
   
3. Timing and Rate Considerations: Some land loans include a “call clause,” which requires you to pay off the balance or begin construction within a specified timeframe (typically a few years). Your land loan’s interest rate is often temporary; you’ll get a new rate for your construction loan and mortgage.
   
   
4. Preparing for Construction: While holding the land, you can work on getting permits, arranging utility connections, and preparing the site, such as grading. Completing these steps early can make it easier to secure a construction loan by showing progress and lowering lender risk.
   
   
5. Exploring Financial Alternatives: Besides a standard land loan, you could use a Home Equity Line of Credit (HELOC) on another property or seek seller financing directly from the landowner. These alternatives offer more flexibility or lower upfront costs, potentially saving you the typical $1,000 to $4,000 fee for traditional loans.

What are the first steps after my land loan is approved?

Once your land loan is approved, the first step is to carefully review your loan estimate and closing disclosure to understand the final terms and costs. 

You will then schedule a closing date with the lender, title company, or attorney. 

Before closing, you may need to order or update the property appraisal and survey to meet the lender’s requirements. 

The title company does the title search and provides title insurance to protect your ownership. 

The best banks for land loans will provide a clear checklist, ensuring you have your down payment and closing funds ready via cashier’s check or wire transfer. 

You should also confirm if any liability insurance is needed for the vacant property and begin planning for utility connections and permits. 

Pay close attention to your rate lock expiration date and prepare for post-closing tasks, such as setting up automatic payments. 

To review your next steps with an expert and ensure a smooth closing, schedule a free discussion today.

Takeaways

• How Land Loans Differ from Traditional Mortgages: Land loans are designed for purchasing undeveloped or vacant lots, and they often come with higher interest rates and stricter requirements. Understanding these differences helps you prepare for a more complex approval process.

• Lender Requirements Are Stricter: Banks typically require strong credit, a substantial down payment, and detailed land information before approving a loan. These factors reduce risk and show lenders that you are a qualified borrower.

• Interest Rates and Terms Vary Widely: The best banks for land loans offer flexible repayment terms ranging from 5 to 20 years. Comparing rates and conditions across lenders can help you secure the best deal.

• Location and Land Type Affect Loan Approval: The property’s zoning, access to utilities, and development potential all influence lender decisions. Improved land generally qualifies for better rates and easier approval.

• Professional Guidance Can Simplify the Process: Working with an experienced lender or real estate professional helps you understand loan options and eligibility. Their insights can save time and reduce costly mistakes during the loan process.

**NOTICE: Please note that the content presented in this post is intended solely for informational and educational purposes. It should not be construed as legal or financial advice or relied upon as a replacement for consultation with a qualified attorney or CPA. For specific guidance on legal or financial matters, readers are encouraged to seek professional assistance from an attorney, CPA, or other appropriate professional regarding the subject matter.