Can You Get a Mortgage on Land? Land Loan vs Mortgage Explained

Buying land can be an exciting step toward building a home, starting a business, or making a long-term investment. However, many buyers are surprised to learn that financing land works differently than financing a house. One of the most common questions people ask during the process is: can you get a mortgage on land?

The simple answer is that you usually cannot get a traditional mortgage for land alone, but you can still finance it through a specialized type of loan known as a land loan. These loans allow buyers to purchase vacant land and pay for it over time, similar to a mortgage, but they often come with stricter requirements and higher down payments.

In this Redfin article, we’ll explain how land financing works, compare land loans to mortgages, and walk through the key factors lenders consider when approving land purchases.

Can you get a mortgage on land?

In most cases, lenders will not issue a traditional mortgage for land that does not already have a home or building on it. Mortgages are designed for developed properties because houses provide immediate collateral value and are generally easier to sell if a borrower defaults.

Vacant land carries more uncertainty. If the borrower stops making payments, the lender may have difficulty reselling the property quickly. Land values can also depend heavily on future development, zoning changes, and infrastructure improvements. Because of these risks, lenders typically use a different type of financing when dealing with vacant land.

Instead of a mortgage, buyers usually apply for a land loan or lot loan. These loans serve a similar purpose to a mortgage—allowing you to borrow money to purchase property—but the loan terms are typically stricter.

Land loan vs mortgage: what’s the difference?

Understanding the difference between a land loan and a mortgage is essential for anyone considering buying land. While both are real estate loans, they are designed for different types of properties and carry different risk levels for lenders.

• A mortgage loan is used to purchase property that already has a livable structure, such as a house, condo, or multi-family residence. Because the property can be occupied immediately and has an established market value, lenders consider mortgages relatively low-risk. As a result, mortgages typically offer lower interest rates, longer repayment terms, and smaller down payment requirements.
• A land loan, on the other hand, is used to finance vacant property that does not yet have a building on it. Since the land may not generate income or be easily resold, lenders consider these loans riskier. That risk often results in higher interest rates and larger down payment requirements.

Another key difference involves repayment terms. Traditional mortgages commonly last 15 to 30 years, giving borrowers a long period to repay the loan. Land loans often have shorter repayment periods, sometimes 10 to 15 years, which means monthly payments may be higher.

The purpose of the purchase also plays a role. Mortgages are usually issued for primary residences or investment properties that already exist, while land loans may require borrowers to explain their plans for development. Lenders may ask whether the buyer plans to build a home soon or hold the land as a long-term investment.

While mortgages offer more favorable terms overall, land loans are often the only option when purchasing vacant property.

Types of land loans

The type of land you are buying significantly affects the financing options available. Lenders generally categorize land into three main types: raw land, unimproved land, and improved land. Each category carries a different level of risk, which influences loan terms and approval requirements.

1. Raw land loans

Raw land refers to property that has no development or infrastructure in place. These parcels are often located in rural or undeveloped areas and may not have access to basic services like utilities or paved roads. Because of these risks, lenders usually impose stricter loan requirements for raw land purchases. Borrowers often need to provide a larger down payment, strong credit history, and a clear plan for how the land will be used.

Typical raw land loan terms include:

• Down payments of 20% to 50%
• Higher interest rates compared to mortgages
• Loan terms typically around 10 to 15 years

In many cases, lenders will ask about the buyer’s intentions for the property. Whether you plan to build a home, start agricultural operations, or hold the land as an investment, explaining your plans can improve the likelihood of approval.

2. Unimproved land loans

Unimproved land sits between raw land and fully developed property. These parcels typically have some nearby infrastructure but still require additional work before construction can begin. 

For example, unimproved land might include basic road access while lacking direct connections to utilities. Electricity may be available nearby, but water, sewer, or septic systems may not yet be installed.

Because unimproved land already has some development potential, lenders generally view it as less risky than raw land. As a result, loan terms may be slightly more favorable.

Typical unimproved land loan terms include:

• Down payments around 20% to 35%
• Interest rates lower than raw land loans but higher than mortgages
• Moderate loan terms, depending on the lender

Lenders may still want to understand how the property will eventually be developed. Demonstrating that utilities can realistically be connected and that the land is suitable for construction can help strengthen your loan application.

3. Improved land loans

Improved land—often referred to as lot land or build-ready land—is property that already has the infrastructure needed for construction. These parcels are usually located in residential developments or areas where utilities and roads have already been installed.

Borrowers purchasing improved land may qualify for lower down payments—often around 10% to 25%—and more favorable interest rates compared to other land loans. Improved land loans are common in residential subdivisions where developers sell individual lots to buyers planning to build homes.

Typical improved land loan terms include:

• Down payments around 10% to 25%
• Lower interest rates compared to other land loans
• Loan terms that may be closer to traditional real estate financing

Because improved land is ready for building, it carries less risk for lenders compared to raw or unimproved land.

How to get a land loan

Financing vacant land can be slightly more complex than financing a home because fewer lenders offer these types of loans. Buyers may need to explore multiple financing options to find a lender willing to fund the purchase. Understanding where to look can make the process much easier and increase your chances of securing a loan.

Some of the most common ways to get a land loan include:

• Local banks and credit unions: Community lenders are often a good starting point because they understand local land values and development trends. They may be more willing to finance property in their region than large national banks.
• Agricultural lenders or Farm Credit institutions: These lenders specialize in financing farmland and rural property. They can be a strong option for buyers purchasing acreage, agricultural land, or property outside major cities.
• Seller financing: In some cases, the property owner may agree to finance the purchase directly. Instead of borrowing from a bank, the buyer makes monthly payments to the seller based on terms agreed upon by both parties.
• Developers or home builders: Developers sometimes offer financing when selling lots within new housing communities. These loans may be designed for buyers who plan to build a home within a certain timeframe.

Because land loans are more specialized than traditional mortgages, buyers may need to compare several lenders before finding the right option. Exploring local banks, agricultural lenders, and alternative financing arrangements like seller financing canincrease your chances of securing a loan to purchase land.

Requirements for land loans

Because vacant land is generally considered a higher-risk investment than developed property, lenders usually have stricter requirements for approving land loans. Borrowers often need stronger financial profiles and may need to provide more information about how the land will be used.

Before applying for a land loan, it’s helpful to understand the factors lenders commonly evaluate during the approval process.

Some of the most important land loan requirements include:

• Larger down payment: Land loans typically require a higher down payment than traditional mortgages. Buyers may need to put down 20% to 50%, depending on the type of land and the lender’s policies.
• Credit score: Most lenders prefer borrowers with a credit score of 680 or higher. Stronger credit can improve approval chances and may help secure better interest rates.
• Debt-to-income ratio (DTI): Lenders review how much of your monthly income goes toward existing debt payments. Lower debt-to-income ratios usually signal stronger financial stability and increase the likelihood of loan approval.
• Plans for the land: In many cases, lenders will ask how you plan to use the property. If you intend to build a home or develop the land, providing a clear timeline, construction plans, or development goals can strengthen your application.

Using a construction loan instead

For buyers who plan to build a home in the near future, a construction-to-permanent loan may be a better option than a traditional land loan.

This type of financing combines the land purchase and home construction into a single loan. During the building phase, funds are released gradually to cover construction costs. Once the home is completed, the loan converts into a standard mortgage.

Construction loans often offer lower interest rates than land loans because the finished property will include a home, which provides stronger collateral. Additionally, borrowers only need to go through one loan process instead of applying for separate loans for the land and the house.

However, construction loans usually require detailed building plans, contractor agreements, and a clear construction timeline before approval.

Pros and cons of financing land

Financing land can make property ownership more accessible, but it also comes with several considerations that buyers should evaluate carefully.

Some of the main benefits of financing land include:

• Lower upfront cost: Financing allows you to purchase land without paying the entire purchase price in cash.
• Opportunity to secure desirable property early: Buying land now can allow you to hold valuable property before prices rise or development occurs in the area.
• Potential long-term appreciation: Land values may increase over time, especially in areas experiencing population growth or new infrastructure development.
• Flexibility for future plans: Owning land gives you the freedom to build a custom home, start a business, or develop the property according to your own timeline.
• Investment potential: Some buyers purchase land as a long-term investment, planning to sell later when demand increases.

Despite these benefits, land loans also come with several challenges buyers should consider:

• Higher interest rates: Land loans often have higher rates than traditional mortgages because lenders consider vacant land riskier.
• Larger down payment requirements: Many lenders require 20% to 50% down depending on the type of land being purchased.
• Limited lender options: Not all banks offer land loans, which can make finding financing more difficult.
• Shorter loan terms: Land loans may have repayment periods shorter than standard mortgages, leading to higher monthly payments.
• Uncertainty about development: Factors such as zoning, utilities, and infrastructure can affect how easily the land can be used or resold.

Can you get a mortgage on land?

Although you usually cannot get a traditional mortgage for vacant land, financing options are still available through land loans and construction loans. These specialized loans allow buyers to purchase property while spreading payments over time, but they often require larger down payments and stronger financial qualifications.

Whether you plan to build a home right away or invest in land for the future, researching lenders and preparing your finances can significantly improve your chances of securing the right loan.

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