How to get a personal loan to buy land | finder.com

Personal loans to buy land

Don't want a lot loan? Here's another way to get finance your land.

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Getting a loan for your land purchase is generally more difficult than applying for a mortgage — but it isn’t impossible. You’ll just need to know what types of loans you can get and develop a plan that appeals to potential lenders.

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Our top pick: Upgrade Personal Loans*

Affordable loans with two simple repayment terms and no prepayment penalties.

  • Min. Loan Amount: $1,000
  • Max. Loan Amount: $50,000
  • Requirements: At least 18 years old, US citizen or permanent resident, verifiable bank account, valid email address
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How do personal loans to buy land work?

Some lenders allow you to use a personal loan to buy land without a down payment. It’s different from a mortgage because a mortgage is secured by the property you’re purchasing, whereas buying raw or undeveloped land doesn’t typically include a home you can use as collateral — often resulting in higher rates to compensate the higher risk to the lender.

How easy is it to get a land loan?

How easy it is to get a land loan depends on what you plan on doing with your land once you’ve purchased it.

For instance, it’s easier to borrow money for land that you plan to build a home or business on than it is to buy raw or undeveloped land that won’t be improved. How much land you want to buy also affects whether you can easily get a loan, as do city or county regulations and zoning laws.

You can improve your chances of approval for a land loan by going into the process with a solid plan and a specific piece of land in mind. If you plan to build a primary residence on the property, you further increase your chances of lender approval, while buying land for unknown future uses can result in a denial on your loan request.

4 steps to take before getting a personal loan for land

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Unlike a mortgage, getting a land loan nearly entirely depends on the piece of property you intend to purchase.

To convince a lender that you’re won’t default and a have plan in hand, take a few important steps before contacting potential lenders.

1. Know what land you’d like to buy.
Before you contact a lender, have a lot in mind. A lender wants to know what you’ll be doing with the land, and going to a lender without knowing the land itself can result in a rejection.

2. Know the zoning regulations, easements and improvements.City and county zoning laws play a big part in what you can and can’t do with your land. For instance, you might not be able to legally start a farm if the area is zoned residential.

Similarly, easements — or the right for you to use someone else’s land — and planned improvements for sewage, electricity and other utilities could prevent you from doing what you’d like once you buy the property. If you’re looking to build a house but a local cattle farmer has rights to use a portion of your land to graze, you’ll have to settle the issue legally before you can build.

3. Contact the seller to make an offer.
Once you’ve done your research and are ready to buy, contact the seller either yourself or through a lawyer. Prepare to ask for an exclusive buying period while you pursue financing — otherwise, the owner could sell the land before you’re approved for a loan.

4. Develop a plan for the property.
Prepare a substantial plan for your property, including your estimates of costs and timeline for building on the land. Be specific for your needs — for example, when planning a farm, include costs for purchasing livestock, seed and farm equipment. Your job is to convince the lender you won’t default, and showing them your ideas, associated costs and estimated timing attached is a solid way to help secure your financing.

Types of land loans

Now that you’re ready to get a land loan, it’s time to consider the type of loan you need. By narrowing down the exact type of loan you need, you might find that a lender is more willing to finance your purchase.

When you’re looking to purchase land, you have three options: a raw land loan, an improved land loan and a construction loan.

Where can I get a personal loan to buy land?

This isn’t an exhaustive list, but it should give you a place to start when you’re looking for a lender.

  • Credit union loans. A credit union loan is a suitable option because the banker likely knows the area. They’re more likely to work with you when your plan involves developing your land or building a house.
  • Home equity loans. If you own a home and have already built up equity, consider tapping into your equity to make a down payment on your land loan. Lenders like to see that you have additional collateral, assuming that with it, you’re less likely to default on your loan.
  • Owner financing. This is a seller-to-buyer option through which you agree to pay the person selling the land in installments, rather than go through a secondary lender. Because you’re setting up a promissory note containing the various elements of a purchase — interest rate, repayments, what happens in a default — consider legal counsel when pursuing this type of loan. And keep in mind, bank loans are usually insured FDIC up to $250,000, while purchases between private citizens won’t be.
  • Farm loans. If you plan on starting a farm, a loan through the USDA Farm Service Agency may be an option. The FSA is helpful for people who may not have the best credit but do have a history in agriculture.

Which lenders are best to finance a land purchase?

Not all lenders are willing to finance a land loan, so research potential lenders before you attempt to apply. Consider starting your research with local credit unions — these institutions could know your local area better than national banks, and might be more willing to assess the benefits of your land purchase. You can also try local banks or national banks.

If all else fails, speak to the land owner directly. You may be able to purchase the land directly from the seller in installment payments, rather than having to pay for it in one lump sum. We discuss this type of lending situation called owner financing above.

Compare these potential lenders for a land loan

Updated September 17th, 2019
Name Product Filter Values APR Min. Credit Score Max. Loan Amount
6.95% to 35.89%
640
$40,000
A peer-to-peer lender offering fair rates based on your credit score.
5.34% to 35.99%
Good to excellent credit
$100,000
Get personalized rates in minutes and then choose a loan offer from several top online lenders.
3.99% to 35.99%
500
$100,000
Quickly compare multiple online lenders with competitive rates depending on your credit.
Varies by lender
Available for all credit scores
$100,000
Get a connected with a lender — or get debt advice.
5.99% to 17.66%
680
$100,000
No fees. Multiple member perks such as community events and career coaching.
3.84% to 35.99%
550
$100,000
Get connected to competitive loan offers instantly from top online consumer lenders.
34% to 155% (Varies by state)
550
$10,000
Check eligibility in minutes and get a personalized quote without affecting your credit score.
7.99% to 35.89%
620
$50,000
Affordable loans with two simple repayment terms and no prepayment penalties.

Compare up to 4 providers

Cautions to consider when financing a land purchase

  • It can be difficult to get financing. Because land is hard to sell if you default on your loan, lenders are often less likely to finance your purchase without proof of a solid plan.
  • A high down payment may be required. Land loans — especially raw land loans, where the land is not already improved — can require high down payments. Be prepared to put down 30% to 50% of your land cost when you get a loan.
  • Good credit is required. Because a lender is likely taking a big risk to help you buy your land, you’ll need good to excellent credit for most land purchases. Lenders want to be sure you’re able to handle your money and make timely payments before they commit.
  • You’ll need to know the area. If you don’t know the area, easements, property values and geographic concerns like flooding or tornadoes, you might not be prepared for potential damage to your property. Do your research before you start the buying process so that you don’t face an expensive surprise in the future.

Tips for purchasing land

You have two main factors to consider when purchasing land:

  • When to purchase. There’s no best season to purchase property, but many people take their land off the market during autumn or winter, which could result in fewer properties available for purchase. For the most options and possibly lower prices, compare values across all seasons to see how they fluctuate in your local market.
  • What to purchase. When narrowing down the type of land you want to purchase, you’ll need to nail down what you plan on using it for. If you plan on building a house, it’s better to find property with improvements rather than raw land to avoid incurring the extra costs of installing utilities.

Bottom line

If you’re considering buying a piece of property, you could face more steps than you might have expected. The good news: The best land purchase can be an asset to your financial portfolio. And if you go to a lender knowing exactly what you need, you’ll have a better chance of qualifying for a loan.

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