Buying land in the United States is an exciting investment, whether you’re planning to build a home, start a farm, or simply hold the property. However, finding the right loan can make all the difference. Here’s a breakdown of your best options and answers to common questions about land loans.

What Loan Is Best for Buying Land in the U.S.?

Several types of loans are available for land purchases in the U.S., depending on the type of property and your financial plans.

1. Raw Land Loans
   • What They Cover: Completely undeveloped land without utilities or infrastructure.
   • Requirements: These loans are considered high-risk by lenders, so expect higher interest rates and a large down payment.
   • Ideal For: Buyers who are planning long-term development or are prepared for initial challenges.
2. Improved Land Loans
   • What They Cover: Land with basic infrastructure like utilities, road access, or water.
   • Requirements: Lenders may ask for details on your intended use of the land.
   • Ideal For: Buyers who want a property closer to being ready for development.
3. Construction-to-Permanent Loans
   • What They Cover: These combine financing for purchasing land and building a structure.
   • Requirements: You’ll need to present detailed construction plans and a clear budget.
   • Ideal For: Buyers looking to build a home or commercial property shortly after purchasing the land.
4. Owner Financing
   • What They Cover: Financing provided directly by the seller.
   • Requirements: Negotiated terms between the buyer and seller, often with more flexibility.
   • Ideal For: Buyers with difficulty qualifying for traditional loans.
5. USDA Loans for Rural Land
   • What They Cover: Rural land purchases and possibly home construction, available to eligible low-to-moderate-income buyers.
   • Requirements: USDA loans have strict location and income criteria.
   • Ideal For: Those looking for affordable land in rural areas.

Can I Get a Mortgage Just to Buy Land in the U.S.?

Yes, you can get a mortgage specifically for land. These loans are often referred to as “land loans” and differ from traditional home loans in several ways:

• Shorter Loan Terms: Land loans usually have shorter repayment periods.
• Higher Interest Rates: Rates are higher because lenders consider land purchases riskier than homes.
• Strict Approval Process: You’ll likely need a strong credit score, a sizable down payment (typically 20-30%), and clear plans for the land’s use.

Tip for U.S. Buyers: If you intend to build on the land soon, a construction-to-permanent loan can streamline financing and save on closing costs.

What Is the Best Way to Borrow Money to Buy Land?

To increase your chances of getting approved for a land loan in the U.S.:

• Understand the Land Type: Raw land (undeveloped) requires more stringent terms, while urban or improved land is easier to finance.
• Boost Your Credit Score: A higher score improves your chances of securing a loan with favorable terms.
• Save for a Down Payment: In most cases, a 20-30% down payment will be required.
• Research Lenders: Some banks, credit unions, and online lenders specialize in land loans. Compare their terms carefully.
• Create a Solid Plan: Lenders want to see that you have a clear, realistic purpose for the land—whether it’s building a home, starting a business, or other uses.

Urban vs. Raw Land: How Loans Differ in the U.S.

• Urban Land Loans:
  Urban land typically has infrastructure in place, such as water, electricity, and roads. Because these properties are easier to sell, lenders view them as less risky. As a result, you may secure better interest rates and require a smaller down payment.
• Raw Land Loans:
  Raw land lacks infrastructure, making it more challenging and expensive to develop. These loans require higher down payments and come with steeper interest rates. Lenders may also demand detailed plans and proof of your ability to develop the property.

U.S.-Specific Loan Options

• FHA Loans: While not directly for land, FHA construction loans can help buy land and finance building a home if you meet specific criteria.
• VA Loans: Veterans can combine a land purchase with construction through certain VA loan programs.
• State-Specific Programs: Some states offer assistance for land and home purchases, particularly in rural areas.

When applying for a land loan in the U.S., lenders evaluate several factors to determine your eligibility and the terms they can offer. Below are the detailed requirements you should be prepared to meet based on the type of loan and the nature of the land.

General Loan Requirements

Regardless of the loan type, these factors apply:

1. Credit Score
   • A strong credit score (typically 680 or higher) is crucial.
   • Higher scores improve your chances of approval and help secure lower interest rates.
2. Down Payment
   • Expect to put down 20-30% of the land’s purchase price.
   • Raw land may require a higher down payment than improved or urban land.
3. Debt-to-Income Ratio (DTI)
   • Lenders often require a DTI ratio below 43%.
   • This ensures you have enough income to cover loan payments along with other financial obligations.
4. Proof of Income
   • Provide tax returns, pay stubs, or other proof of steady income to reassure lenders.
   • Self-employed applicants might need to present additional documentation.
5. Land Appraisal
   • Lenders usually require an appraisal to assess the land’s value.
   • Appraisals are more complex for raw land, as they factor in location, zoning, and future potential.
6. Purpose and Plans for the Land
   • Lenders want to know how you plan to use the property.
   • For raw land, detailed plans for development (e.g., blueprints, contractor agreements) are often necessary.

Loan-Specific Requirements

Raw Land Loans

• Higher Interest Rates: These loans carry more risk for lenders, so interest rates are typically higher.
• Development Plans: You’ll need to show how you intend to develop the land, including timelines and permits.
• Savings: Lenders may ask for proof of liquid savings to cover potential issues during development.

Improved Land Loans

• Moderate Down Payment: Expect around 20%, as improved land poses less risk.
• Zoning Approval: Lenders may require proof that the land is zoned for your intended use (residential, agricultural, or commercial).

Construction-to-Permanent Loans

• Construction Details: Provide blueprints, a building schedule, and a budget breakdown.
• Builder Credentials: Many lenders require that you work with licensed contractors and may vet their qualifications.
• Two-Part Approval: Initially, lenders approve funds for land purchase and construction. Afterward, the loan converts to a mortgage.

USDA Loans

• Eligibility Requirements: The land must be in an eligible rural area, and your income must fall within USDA guidelines.
• No Down Payment: USDA loans often don’t require a down payment, making them an excellent option for qualifying buyers.
• Primary Residence: You must plan to build and live on the land as your primary residence.

Seller Financing

• Flexible Terms: Since sellers negotiate terms directly, they may not require stringent credit checks or appraisals.
• Higher Interest Rates: Rates are often higher than traditional loans.
• Short-Term Loan: Seller financing typically involves shorter repayment periods, so you may need a plan for refinancing later.

Additional Considerations for Urban vs. Raw Land

• Urban Land:
  • Easier to appraise due to established infrastructure.
  • Loans may require proof of existing utilities, such as water and electricity access.
  • Zoning and permits may still need verification depending on your intended use.
• Raw Land:
  • Requires more upfront work, including soil tests, environmental reports, and access plans.
  • Lenders will likely scrutinize your financial stability more closely.

Preparing for the Loan Application

• Assemble Documentation: Collect all necessary paperwork, including income proof, tax returns, and development plans.
• Improve Your Credit: Check your credit report for errors and pay off outstanding debts to raise your score.
• Budget for Closing Costs: Land loans come with closing costs like any other mortgage, typically ranging from 2-5% of the loan amount.
• Work with Specialists: Some lenders specialize in land loans and may offer better terms or insights compared to general banks.

By understanding and preparing for these requirements, you’ll improve your chances of securing a land loan with favorable terms.

Final Thoughts

Choosing the right loan for buying land in the U.S. depends on the property type and your financial readiness. Urban land typically offers easier terms, while raw land requires more upfront investment. To succeed, focus on improving your credit, saving for a down payment, and researching lenders.