3 Financing Options If You Want to Buy Land

Advertiser Disclosure

Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.

land purchase financing
Logo

We’ve got your back! Student Loan Hero is a completely free website 100% focused on helping student loan borrowers get the answers they need. Read more

How do we make money? It’s actually pretty simple. If you choose to check out and become a customer of any of the loan providers featured on our site, we get compensated for sending you their way. This helps pay for our amazing staff of writers (many of which are paying back student loans of their own!).

Bottom line: We’re here for you. So please learn all you can, email us with any questions, and feel free to visit or not visit any of the loan providers on our site. Read less

If you want to buy a new home, prepare to shell out big bucks. The average sale price of a new home in the nation was $376,700 in February 2018, according to the U.S. Census Bureau.

If that kind of price tag is out of reach or you want to build a home to fit your own specifications, buying land could be a cheaper option. However, land purchase financing is significantly different from traditional mortgage financing. Before applying for a land loan, make sure you understand how the process and repayment terms work.

How does land purchase financing work?

Some people are opting to build tiny homes to save money, while many are buying undeveloped plots of land to construct their homes. Even those who aren’t downsizing but want a more traditional house are buying land so they can develop it to meet their requirements and tastes.

According to the U.S. Department of Agriculture, the nationwide average price for an acre of land is $3,080. The price could be higher, depending on where you live. For example, an acre of land in New Jersey costs $12,800 on average.

If you don’t have money in the bank to buy the land outright, you could turn to land purchase financing. Like mortgages, land loans allow you to borrow the amount you need to buy the property and then repay the debt over time.

Evan Roberts, the co-founder of Dependable Homebuyers, said there are two kinds of land that can be bought: lot land and raw land.

“The largest factor in considering a land loan is whether or not you’re purchasing a plot which has been zoned for residential construction and includes utility hookups,” said Roberts. “Without this, the plot is considered raw land. Residential plots are less risky since they are building-ready.”

3 ways to finance your land purchase

If you want to buy a prebuilt home, there are many loan programs available. And if you don’t have money saved for a large down payment, there are programs to help you qualify for a mortgage with a down payment as low as 3.5%.

With land purchase financing, however, you don’t have that luxury. A land purchase won’t qualify for a traditional mortgage, so you’ll need to pursue other borrowing options. The type of loan you pursue determines which lenders you can work with, your down payment requirements, and interest rates. Here are three options for land purchase financing.

1. Loans for lot land

Lot land is a plot that a county has zoned for residential use. Typically, the land already has been connected to roads and utilities such as electricity, sewer, and water systems.

According to real estate site Zillow, most lot-land lenders require you to have a down payment of 10% to 20% of the land’s total price to qualify for a loan. The repayment term can go up to 20 years.

Loans for lot land are available from banks and credit unions.

2. Loans for raw land

If you want to live off the grid or near a beautiful forest that could be the perfect backdrop for your home, you’ll need to take out a loan for raw land.

Raw land typically doesn’t have the amenities available on lot land. It doesn’t have access to water or sewer lines, electricity, or even roads. You’ll be responsible solely for the cost of hooking up your land to utilities, which can cost thousands of dollars. Lenders view loans for raw land as riskier than those for lot land. The higher risk means most lenders will require a bigger down payment. According to Roberts, raw land loans usually require a 50% down payment.

Finding lenders for raw land loans can be more challenging than for lot land loans. Some banks offer raw land loans, but you also might have to turn to niche lenders such as Country Living.

3. Personal loans

If you don’t qualify for a land loan or don’t have enough money saved for a down payment, another financing option is to take out a personal loan. Unlike land purchase financing, personal loans don’t require a down payment. Many personal loans are unsecured, meaning you don’t have to put up any collateral. Also, personal loan lenders can work with borrowers with credit scores as low as 580, so they might be more willing than land loan lenders to work with you in such cases.

However, using a personal loan to buy land is expensive. The interest rate on personal loans can be dramatically higher than those on land loans. Plus, they often have much shorter repayment terms.

For example, the Randolph-Brooks Federal Credit Union offers land loans with interest rates as low as 4.95% and repayment terms of up to 15 years. By contrast, some personal loan lenders have interest rates as high as 35.99%. Also, most personal loan lenders have repayment terms of five years or less.

The difference between the loan types can cost you dearly. If you took out a $5,000 land loan at an interest rate of 4.95% and paid it off in five years, you’d repay a total of $5,655. However, if you took out a five-year personal loan of $5,000 at a 35.99% interest rate, your total repayment would be $10,838. Thanks to the much higher interest rate on a personal loan, you’d end up paying back more than double the amount you borrowed.

Financing your home

Finding the perfect plot for your home is exciting, but it’s important to understand the nuances of land purchase financing to ensure you make a sound decision. The costs of developing land can be prohibitive, so carefully review any possible expenses.

If you decide to buy a prebuilt home instead of developing land to save money, compare multiple mortgage offers to get the best rate.

Interested in a personal loan?

Here are the top personal loan lenders of 2018!
LenderRates (APR)Loan Amount 
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Personal LoansFixed rates from 6.58% APR to 14.87% APR (with AutoPay). Variable rates from 6.275% APR to 12.575% APR (with AutoPay). SoFi rate ranges are current as of July 16, 2018 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. See APR examples and terms. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 6.275% APR assumes current 1-month LIBOR rate of 2.10% plus 4.175% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.
  2. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

2 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  • Personal Loan Rate DisclosureFixed interest rates from 6.49% – 19.49% (6.49% – 19.49% APR) based on applicable terms. Lowest rates range from 5.99%-18.99% (5.99%-18.99% APR), are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  1. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  2. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.

* Important Disclosures for Upgrade Bank.

Upgrade Bank Disclosures

  • Personal Loan Rate DisclosureFixed interest rates from 6.49% – 19.49% (6.49% – 19.49% APR) based on applicable terms. Lowest rates range from 5.99%-18.99% (5.99%-18.99% APR), are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  1. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  2. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.
7.73% – 29.99%$1,000 - $50,000
Check rate nowon SLH's secure site
6.28% – 14.87%1$5,000 - $100,000
Check rate nowon SLH's secure site
6.87% – 35.97%*$1,000 - $50,000Visit Upgrade
8.00% – 25.00%$5,000 - $35,000
Check rate nowon SLH's secure site
4.99% – 29.99%$10,000 - $35,000Visit FreedomPlus
5.99% – 18.99%2$5,000 - $50,000Visit Citizens
15.49% – 34.49%$2,000 - $25,000Visit LendingPoint
5.99% – 35.89%$1,000 - $40,000Visit LendingClub
5.49% – 18.24%$5,000 - $75,000Visit Earnest
9.95% – 35.99%$2,000 - $35,000Visit Avant
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.