Think you need a giant pile of cash to buy land? 🌳

Not necessarily.

One of the biggest misconceptions about buying raw land is that you have to write a check for the entire purchase price. While cash is certainly the simplest option, there are actually several ways to handle raw land financing depending on the property, your finances, and what you ultimately plan to do with it.

The catch?

Financing land is a little different from financing a house.

A traditional mortgage lender has a house sitting on the property as collateral. With raw land, there may be no house, no utilities and sometimes very little infrastructure at all. That creates more risk for the lender, which is why land loans can require larger down payments and stricter qualifications.

But that doesn't mean financing isn't available.

Here are some of the best options. 👇

1. A Traditional Land Loan

A land loan is specifically designed to finance vacant property.

Banks, credit unions and specialty lenders may offer them, but the terms often depend heavily on what kind of land you're buying.

Generally, lenders divide land into three categories:

Raw land has little or no infrastructure.

Unimproved land may have some access to roads or utilities but still needs considerable development.

Improved land is closer to being build-ready, with things like road access and utilities nearby.

The less developed the property, the riskier it tends to look to a lender.

Current lending guidance suggests raw land buyers may need roughly 30% to 50% down, while improved lots can sometimes qualify with considerably less.

Best for:

Buyers with strong credit, available cash for a down payment and a clear plan for the property.

2. Local Banks and Credit Unions

Don't automatically start with the giant national banks.

When it comes to financing land, a local community bank or credit union can sometimes be a much better option.

Why?

Because they understand the local market. 📍

A lender located near the property may be more comfortable financing rural acreage, recreational property or vacant residential lots than a national lender operating from thousands of miles away.

They may also be more willing to look at the entire deal instead of simply plugging your information into an automated mortgage formula.

If you're shopping for a land loan, I would absolutely call several local lenders before assuming financing isn't available.

3. Seller Financing

This may be one of the simplest ways to buy land.

With seller financing, the person or company selling the property becomes the lender.

Instead of borrowing $20,000 from a bank, for example, you might make a down payment and then make monthly payments directly to the seller.

A deal might look something like:

The exact terms vary tremendously.

Seller financing can be especially attractive because it may involve:

• Lower down payments
• Faster approval
• Less paperwork
• Flexible loan terms
• Little or no traditional credit underwriting

For buyers looking for affordable property, owner financed land can open the door to ownership without having to qualify for a traditional mortgage. 💰

Of course, read the agreement carefully. Understand the interest rate, payment schedule, balloon payments, late-payment provisions and when ownership transfers.

Best for:

Buyers who want a simpler purchasing process or who don't fit traditional bank lending requirements.

4. Home Equity Loan or HELOC

Already own a house with significant equity?

You may be able to use some of that equity to purchase land.

A home equity loan normally gives you a lump sum with fixed payments.

A home equity line of credit, or HELOC, works more like a revolving credit line.

Either can potentially be used to buy vacant land without having to qualify for a separate land loan.

There is one major caveat.

Your home is securing the debt.

That means you're putting your primary residence at risk if you can't repay the loan. Buying a piece of land is exciting. Risking your house to do it deserves considerably more thought.

Best for:

Homeowners with substantial equity, strong finances and a clear reason for purchasing the property.

5. Personal Loan

For relatively inexpensive parcels, another option is an unsecured personal loan.

You aren't borrowing against the land itself.

Instead, the lender approves the loan primarily based on your credit, income and overall financial profile.

The advantage?

Closing can sometimes be much faster than a traditional real estate loan. ⚡

The disadvantage?

Interest rates can be significantly higher.

That means this strategy tends to make more sense on smaller purchases where you're borrowing a relatively modest amount and can pay the loan off reasonably quickly.

Best for:

Lower-priced land purchases where convenience is more important than obtaining the absolute lowest interest rate.

6. Construction-to-Permanent Financing

Planning to buy land and build a home relatively soon?

Instead of taking out one loan for the land and another loan later for construction, look into a construction-to-permanent loan.

These loans can combine the land purchase and home construction into a single financing package.

Once construction is completed, the construction loan converts into a traditional mortgage.

This can reduce the hassle of arranging multiple loans and multiple closings.

USDA also offers construction-to-permanent financing through participating lenders for certain eligible rural primary residences.

Best for:

Someone who already knows they're going to build rather than simply holding the land for the future.

7. USDA, VA, FHA and Other Specialty Programs

This is where things get interesting.

Certain government-backed programs can help buyers acquire land when the purchase is connected to building a qualifying primary residence.

That's an important distinction.

You generally can't buy five acres of recreational land with a USDA home loan and say:

"Maybe someday I'll build something."

USDA housing programs are designed to help eligible buyers purchase or build a primary residence in qualifying rural areas.

VA and FHA construction programs may also be possibilities for qualifying buyers planning to build.

If you're purchasing land for business purposes, completely different financing programs may apply.

So Which Land Financing Option Is Best?

There isn't one answer.

It depends on why you're buying the land.

If you're buying an inexpensive property simply to hold for the future, seller financing may be one of the easiest options.

If you're buying land and immediately building your dream home, construction-to-permanent financing may make much more sense.

If you already have significant home equity, a HELOC or home equity loan might provide access to capital.

And if you're buying larger acreage and have strong credit and substantial cash available, a conventional land loan could be perfectly reasonable.

The mistake is assuming there is only one way to buy land.

There isn't. 🌎

One More Thing Before You Finance Any Property

Don't fall in love with the monthly payment before understanding the land.

Before buying, make sure you understand things like:

• Zoning
• Legal access
• Property taxes
• Utilities
• Flood zones
• Septic and well requirements
• Building restrictions
• HOA or deed restrictions
• Survey and property boundaries
• What you're legally allowed to do with the property

A $199 monthly payment doesn't make something a good deal if the property can't be used the way you imagined.

But when you find the right property, at the right price, with financing that fits your budget, land can be one of the simplest ways to own real estate.

No tenants.

No toilets.

No termites.

Just dirt. 🌱

And sometimes, dirt can be a pretty great thing to own.

This article is for general educational purposes and isn't financial, legal or tax advice. Financing programs and qualification requirements can change, so buyers should confirm current terms with their lender, attorney or financial professional.

Got questions? We’re here to help you find the perfect fit.