A land loan, also known as a lot loan, is money borrowed from a bank or credit union to buy a piece of land. You can get a land loan to buy land you eventually want to build a house on or you can use it just to buy property for outdoor recreation, like hunting and fishing.
In this article, we looked at five of the best banks for land loans and compared their terms and requirements so you have a better idea of what bank may best fit your needs.
- Key takeaways
- The 5 best banks for land loans
- Best banks for land loans comparison
- Old National Bank
- WaFd Bank
- Atlantic Union Bank
- California Bank & Trust
- Banner Bank
- What is a land loan?
- Types of land loans
- Tips on applying for a land loan
- How to choose the best banks for land loans
- FAQ about banks for land loans
- Best banks for land loans: bottom line
- Land and lot loans can be harder to get than traditional mortgage loans.
- Three types of land loans exist: for improved, unimproved, and raw land.
- Land and lot loans usually require higher down payments.
- Interest rates on land and lot loans are typically higher.
- Getting a land loan from a bank located close to the land you want to purchase is recommended.
The 5 best banks for land loans
- Old National Bank
- WaFD Bank
- Atlantic Union Bank
- California Bank & Trust
- Banner Bank
Best banks for land loans comparison
|Bank||States where services are offered||Loan-to-value limit|
|Old National Bank||Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, Wisconsin||80%|
|WaFD Bank||Arizona, Idaho, Nevada, New Mexico, Oregon, Texas, Utah, Washington||70%|
|Atlantic Union Bank||Indiana, Maryland, North Carolina, Virginia||Not specified|
|California Bank & Trust||California||65%|
|Banner Bank||California, Idaho, Oregon, Washington||75%|
Old National Bank
- Maximum loan amount is $500,000
- 20% minimum down payment
- Offers fixed-rate and adjustable-rate loans
- Adjustable rate may offer a lower initial interest rate
- Build needs to be completed within 12 months of loan approval
- Geographic limitations
Old National Bank serves the Midwest states of Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, and Wisconsin. It has 261 locations. If you prefer to conduct your research from home, Old National Bank offers a loan calculator and a loan application on its website.
Old National Bank offers lot and land loans for up to $500,000, but there are geographic limitations for its land loans. Loans to purchase up to five acres require at least a 20% down payment or lot equity in refinance transactions.
Old National Bank gives you the option to choose between a 15-year fixed rate, fully amortized loan or a 5/6 adjusted rate mortgage (ARM) amortized over 20 years. With the ARM loan, the interest rate is currently 5% for the first five years of the loan, after which the rate can increase every six months.
- Improved land lots up to $700,000
- 30% minimum down payment
- Low interest rates on short-term loans
- Loan terms up to 20 years
- No loan options for raw or unimproved land
If you’re looking to buy land in Arizona, Idaho, Nevada, New Mexico, Oregon, Texas, Utah, or Washington, you may want to consider WaFd Bank. Formerly known as Washington Federal Bank, WaFd Bank offers lot and land loans for up to $700,000 on improved land with a minimum down payment of 30%.
While you can get a long-term lot loan for up to 20 years, WaFd Bank offers a 2% interest rate discount for short-term loans for borrowers with a FICO credit score of at least 720 and a down payment of 50%. It also has an online land loan calculator you can tweak based on the land value, down payment, and loan term.
Atlantic Union Bank
- Loans for improved and undeveloped land
- You must make an appointment with a bank representative to find out loan terms
Based primarily in Virginia, Atlantic Union Bank also has four locations in North Carolina, one in Maryland, and one in Indiana. The bank provides land and lot loans for residential (improved) lots or undeveloped land.
Atlantic Union claims to have flexible repayment terms and attractive rates, but you’ll have to meet with a loan officer to get more information on what repayment terms and interest rates you qualify for. Atlantic Union Bank can also help with construction loans when you’re ready to build.
California Bank & Trust
- Finance up to 65% of the cost for improved land
- Single-close loans cover the lot purchase, construction, and mortgage financing
- Need to meet with a bank representative for more information on loan terms and interest rates
California Bank & Trust has been helping Californians with their banking needs since 1952. The financial institution now has over 85 branch locations throughout the state. The bank offers land loans for improved land for up to 65% of the cost.
If you’re ready to build, the bank’s one-time-close construction loan saves you time and the cost of closing because it includes the land purchase, construction costs, and mortgage financing. However, California Bank & Trust funding also allows you to buy a lot even if you’re not ready to build.
Unfortunately, California Bank & Trust doesn’t include much information on their website about their land loan terms or interest rates. You’ll need to speak with a bank representative directly to find out that information.
- Competitive fixed and adjustable rates
- Loans for improved and unimproved land
- Financing up to 75% of value
- Limited information available on its website
Founded in 1890, Banner Bank has grown to manage over $15 billion in assets and has 143 locations in California, Idaho, Oregon, and Washington. The bank offers land and lot loans for improved and unimproved land, financing up to 75% of the land price.
There is little detailed information about Banner Bank’s land loan terms on its website, but it claims to offer competitive fixed-rate and adjustable-rate loans.
What is a land loan?
A land loan, also called a lot loan, is a loan you take out to finance the purchase of a plot of land. The land you want to buy can be for building your dream home or just to have some acreage for recreation.
Many banks and credit unions provide land loans, but land loans typically have higher interest rates, shorter repayment windows, and larger down payment requirements. This is because land loans are more risky for lenders than a traditional home mortgage. It’s easier for borrowers to walk away from payments for land they don’t use often than it is for them to stop paying the mortgage on a home they live in.
Land loans are specifically for a piece of property. If you plan to eventually build a new home on that land, you will have to get a construction loan to finance the build.
Types of land loans
There are three common types of land loans people can get to buy property:
- Raw land loans
- Unimproved land loans
- Improved land loans.
The difference between these types is primarily in how improved/developed the land is.
Raw land loans
Raw land loans are for remote, undeveloped land without electric, sewer, or water service and limited access. Buying raw land may be more affordable, but you may have a harder time getting financing, and interest rates may be higher. If you’re looking to buy raw land, lenders may require a detailed plan on how you will use the land.
Unimproved land loans
Unimproved land loans are for lots that are primarily undeveloped but have better access to utilities, phone service, and other amenities. These loans may also have higher interest rates than raw land loans and require borrowers to have better credit scores and larger down payments.
Improved land loans
Improved land loans are for a developed property that has everything ready for you to build a home on it, including utilities and road access. Buying improved land typically costs more than raw or unimproved land, but getting a land loan for developed land is easier. Plus, the interest rates and required down payments are generally lower with improved land.
Tips on applying for a land loan
If you’re considering taking out a land or lot loan, there are several steps you should take to make sure you find the right loan for your needs. Here are some tips for the land loan application process.
When looking at land loans, the interest rates, required down payments, and approval requirements can vary significantly between lenders. That’s why it’s wise to talk to at least three financial institutions about the terms that they offer. Also, it's a good idea to borrow from a bank or credit union in the same area where you want to buy land.
Get your financial house in order
Land and lot loans are usually harder to get than a traditional mortgage because they’re riskier bets for lenders. So lenders will often require borrowers to have higher credit scores, lower debt-to-income ratios, and a larger down payment.
Lenders may want to see a credit in the upper 600s or lower 700s, with a debt-to-income ratio of 43% or less.
Have a plan of what you will do with the land
Lenders may also require you to provide them with a plan for what you’re going to do with the land you want to buy. Will you eventually build a house there? If so, what is the timeframe? Or are you going to use the land for outdoor recreation only?
Consider other financing options
There may be better options for buying land than getting a land loan. If you’re looking to build your primary residence in a rural area, you can apply for a loan with the U.S. Department of Agriculture (USDA). USDA loans can help qualifying low- to moderate-income families become homeowners without requiring a down payment.
If you’re looking to purchase commercial land, you can apply for a 504 loan with the U.S. Small Business Administration (SBA). The 504 loan program provides financing for the purchase or construction of existing buildings or land, new facilities, and long-term machinery and equipment.
If you’re a homeowner, you could take out a home equity loan, which doesn’t require a down payment and usually has a lower interest rate than a land loan. Keep in mind that you risk losing your home if you default on a home equity loan because your home acts as the collateral.
You could also ask the seller if they’d be willing to finance your purchase of their property through a land contract. It's a good idea to seek out a real estate attorney to negotiate the contract and make sure it's legally sound.
How to choose the best banks for land loans
When looking for the best bank for a land loan, consider the following factors:
- What is the interest rate?
- How much down payment is required?
- Does the bank offer fixed-rate or adjustable-rate loans?
- What is the maximum loan amount the bank offers?
- How long is the loan term?
- Is the loan for improved, unimproved, or raw land?
- Are you required to build within a specific timeframe?
- Does the bank also offer construction loans when you’re ready to build?
FAQ about banks for land loans
What is a good credit score for a land loan?
The credit score requirement for land loans varies depending on your lender. To qualify for a land loan, lenders typically want to see a credit score should be in the upper 600s to low 700s. Your credit score may need to be higher if you’re applying for a raw land or unimproved land loan rather than one for improved land.
What is the average amount of time to get a land loan?
The amount of time from application to closing on a land loan will vary depending on the lender, but averages about four weeks. The process of getting a land loan can take longer than getting a traditional mortgage because land loans usually require more detailed information for approval. Any real estate loan will require an appraisal, but an appraisal for a land loan is more complex than one for an existing home. There are usually fewer properties to compare it to, and there may be income-producing factors to take into account, such as rental or timber income.
Is a land loan only for farms?
No, land loans are not only for farms. While you can use a land loan to buy farmland, land loans are often used to purchase land on which you plan to eventually build a home or business, or property to use for outdoor recreation.
Best banks for land loans: bottom line
Of the banks we looked at, Old National Bank appears to offer the best land-loan terms, especially if you’re looking to buy five acres or less in Indiana, Kentucky, Michigan, Minnesota, or Wisconsin. It requires a 20% down payment, while the other banks require 25% to 35% down.
However, several of these banks don’t provide much information on their website, so if you’re considering buying land in the states they serve, you may want to meet with one of their representatives to get more information.
Getting a land or lot loan to purchase property can be more difficult than a traditional mortgage, and you’ll likely have to pay a larger down payment and higher interest rate. If you have another option for financing, like taking out a home equity loan, that may be a better option than a land loan. If you do get a land loan, make sure you shop around to get the best terms.
The companies we chose for the best banks for land loans may be current or past FinanceBuzz partners. We did not review all the companies in the market. When evaluating these companies, we considered factors such as where lending services are offered, minimum down payment, and ease of application.