Land loans

Whether you're looking to purchase land to build your dream home or for commercial needs, taking a land loan is a smart idea. Reach out to us, and we will connect you with several personal loan lenders for land purchases.

Want to borrow more than $5,000? Click here!

What Are Land Loans?

Land loans are a class of loans specifically used to purchase land. The terms and interest rates on these loans can vary depending on the lender, but typically, they are higher than those of mortgage or auto loans.

Because land is a riskier investment than a home, lenders tend to charge higher interest rates to offset the risk. When taking a land loan, review the interest rates to determine the total cost of your loan.

Different land loans are available, depending on the type of land you want. The three main types of land you may purchase are:

  • Raw Land: This type of land has no structures or basic utilities like water or electricity. As a result, it's often cheaper than more developed lands. Unfortunately, many lenders are unwilling to offer loans for raw land.
  • Unimproved Land: Unlike raw land, this type of land may have some structures or utilities like electricity and water. It's easier to get financing for unimproved land than for raw land.
  • Improved Land: This type of land has developed structures and utilities; hence can be expensive to acquire. However, getting a loan for improved land is easy compared to other types of land.

When looking for a land loan, knowing what type of property you're buying is critical to finding the right loan. Talk to your lender about the different land loans available and what is best for your specific needs.

How Does a Land Loan Work?

A land loan works almost in the same way as a typical mortgage. The lender runs a credit check and reviews your financial documentation to determine if it matches the information on your loan application.

But unlike mortgages, there are other guidelines that you need to meet with land loans. For starters, you need to explain to the lender how you intend to use the land. Then highlight the different aspects of the land that need to be checked, such as zoning, utility access, land-use restrictions, and surveyed boundaries.

Once a lender reviews these factors, they will determine the terms and interest rates to charge on your loan. After that, you can sign the loan agreement if you agree to the terms. You'll then make a down payment and pay back the rest of the loan as agreed.

Differences between Land Loans and Home Loans

A home loan is generally used to finance the purchase of an already constructed home or a home under construction. In contrast, a land loan is used to finance the purchase of property, either with the intention of building a home or just holding onto the land.

Home loans usually have longer terms and can run up to 30 years. While land loans have shorter terms, with most having a maximum tenure of 15 years. However, the terms may be longer if you're buying the land to build a home under a mortgage.

For home loans, tax deductions apply to both the principal and interest rates. In contrast, land loans don't qualify for any tax benefits. But if you buy land and then take a loan to build a house, tax deductions may apply.

The home is used as security when taking a home loan. As such, the risks are lower for the lender, and they may be willing to offer loans at better rates. For land loans, there is no home to be used as collateral; thus, the interest rates tend to be higher.

Home loans may require private mortgage insurance if your down payment is below 20%. Land loans, on the other hand, don't require private mortgage insurance.

What Are the Land Loan Rates?

Assuming your credit score is 740, and you are taking a land loan amount of $140,000 to purchase an improved land. The loan may have a 20-year term and a 30% down payment requirement.

After five years, the outstanding principal amount would be about $118,115.27, which you can either pay in full or choose the refinancing option. Here is how it looks from a table:

Loan Amount Loan Term Interest Rate APR Monthly Payment
$140,000 20 years (fixed) 7% 7.170% $1.085.42

Keep in mind the monthly payment indicated only includes the principal and interest. Depending on where you're applying from and the lender, various taxes or insurance may apply to increase the monthly payment. Talk to your lender to know the specific rates on your land loan.

Different Types of Loans for Land Purchases

Here are four common loan options you can use to buy land:


The United States Department of Agriculture (USDA) offers loans and grants to people looking to buy land in rural areas and build homes. These loans have below-market interest rates and are only available for two-year terms. To qualify for the loan, you must be a low-to-moderate-income earner, and the land being developed must be in a rural area.

SBA Loan

The Small Business Administration (SBA) offers a land loan program for those that wish to buy land for commercial purposes or improve land for their business.

To qualify for an SBA, here are some of the conditions you need to meet:

  • Must be operating a for-profit business or company in the US
  • Must be a small business in line with SBA's size standards
  • Must demonstrate the need for financing
  • Must have invested own money or time into the business

While SBA loans often have tight lending standards, their flexible terms and favorable rates make them an attractive option for persons looking to grow their businesses. Depending on the type of SBA loan you want and your business's qualifications, you may also qualify for larger loan amounts (up to $5.5 million), which is way higher than what most lenders offer.

Home Equity Loan

A home equity loan uses your household's equity as surety. This type of loan is accessible to homeowners that have built up home equity. The amount of equity you have in your home will determine how much you can borrow.

Typically you'll get a lump sum upfront, which you'll repay over time in fixed installments. Since your home is tied to the loan as collateral, lenders consider these loans less risky and may offer you the loan at lower interest rates. However, failure to repay the loan may see you lose your home.

Personal Loan

A personal loan can be used in various ways, including purchasing land.

When looking for a personal loan, compare offers from different lenders to get the best possible deal. Also, ensure you have your financial information ready, including your income, debts, and credit score. Lenders will use these details to determine your creditworthiness and the rates to charge on your loan.

Can I Get a Personal Loan to Buy Land with CocoLoan?

Yes, you can apply for a personal loan through CocoLoan, and then use the funds to finance a land purchase. CocoLoan will connect you with dependable and trustworthy lenders who may offer you the loan at favorable terms. Below are the steps to follow when applying for the loan:

Complete a Simple Online Loan Request form

Access our site and fill out a loan request form. You'll be required to provide some personal and financial information, such as your name, address, employment status, and annual income.

Receive and compare offers

If your loan request is approved, our partner lenders will send you their offers, indicating their loan terms, interest rates, APR, etc. Compare these offers and choose the most suitable one based on your needs.

Sign the Agreement

After choosing an offer, you'll be required to sign a loan agreement and submit some supporting documents, like proof of income and bank statements. The signing and submission of documents can be done online.

Receive Your Money

The funds will be sent to your bank account on the same day or within 2-3 working days, depending on the lender you're working with.

How much would you like to borrow?


Pros and Cons of Getting Land loans

Before taking a loan to purchase land, evaluate the pros and cons to determine whether the loan is the best option for you. Below are some of the top advantages and drawbacks.


  • Allows you to build the home of your dreams. This may not be possible when buying an already built home.
  • Businesses can capitalize on up-and-coming areas by purchasing the land before it becomes too expensive.
  • You can use a land loan to buy the land first, then decide later whether to use it for your home or commercial use.
  • Allow you to work on your own time and schedule. You can take years to build your home if necessary.


  • Borrowers with no house which can be used as collateral may get rejected when applying for a loan
  • Land loans come with a higher interest rate than other types of loans.
  • Fewer lenders offer land loans
  • You may need to pay for a survey and zoning
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Looking For a Loan to Purchase Land? Try CocoLoan Today!

Unlike in the past, purchasing land has now been easier with the availability of multiple loan lenders in the market. Submit your loan request form through CocoLoan today to connect with suitable lenders.

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