Land Loan Calculator

What is a Land Loan?

A land loan, sometimes called a lot loan, is a type of financing used to purchase a vacant parcel of land. Unlike a traditional mortgage, which is secured by a house, a land loan is secured only by the land itself. Because of this, lenders view land loans as a higher risk, which means they typically come with different terms than a standard home loan. Our Land Loan Calculator is specifically designed to help you understand these unique costs before you begin the purchasing process.

How Land Loans Differ from Mortgages

Financing a land purchase is not the same as buying a house. Here are the key differences you should be aware of when using this Land Loan Calculator:

• Higher Down Payments: While you can buy a house with a very low down payment, lenders typically require a much larger down payment for a land loan. This can range from 20% to as high as 50%, depending on the type of land and the lender’s policies.
• Higher Interest Rates: Because there is no home on the property to act as collateral, lenders consider land loans to be riskier. To offset this risk, they charge higher interest rates compared to traditional mortgages.
• Shorter Loan Terms: Land loan terms are often much shorter than the standard 30-year mortgage. Terms of 5, 10, or 15 years are common. A shorter term will result in a higher monthly payment, but you will pay less in total interest.

Types of Land and How They Affect Your Loan

The type of land you’re buying has a major impact on your ability to get financing. Lenders categorize land into a few main types:

• Raw Land: This is completely undeveloped land with no access to utilities like water, sewer, or electricity. It has no improvements and may not have road access. Raw land is the most difficult to finance, and often requires the largest down payment.
• Unimproved Land: This is a step up from raw land. It might have access to some basic utilities but lacks major infrastructure like a septic system or a well. It is still considered a high-risk loan by lenders.
• Improved Land: This is the easiest type of land to finance. It is “ready to build,” with full access to roads and all necessary utilities. Lenders are much more willing to offer favorable terms for improved land because the path to construction is clear.