Raw Land Financing: How to Finance Land Purchases

Financing raw land is different from financing improved property or construction. Because raw land doesn't produce income and has no improvements, lenders consider it higher risk — which means down payments are larger, terms are shorter, and interest rates are typically higher than other types of real estate financing.

What Is Raw Land?

Raw land (also called undeveloped land) is land with no improvements — no utilities, no roads, no structures. It's different from "improved" land (which has utilities and/or roads) and from "developed" land (which has buildings). The type of land affects the financing options available.

How Land Loans Work

Land loans are typically short-term loans (3–10 years) used to acquire land. They're not construction loans — they don't fund the construction of improvements. The borrower purchases the land, holds it, and either develops it later, sells it, or refinances it.

• Down payment: Typically 20–50% of the purchase price, depending on the land type and lender. Raw land typically requires more down than improved land.
• Interest rate: Typically higher than conventional real estate loans, because the risk is higher.
• Term: Typically 3–10 years, shorter than traditional mortgages.
• Amortization: May be interest-only or amortized over a shorter period than the term (requiring a balloon payment).

Types of Land Financing

• Raw land loan: For land with no improvements. Highest down payment, highest rate.
• Improved land loan: For land with some improvements (utilities, road access). Lower down payment, lower rate than raw land.
• Land + construction loan: Combines land acquisition and construction financing into one loan. Learn about construction financing.
• Seller financing: The seller finances the land purchase. Terms vary.

What Land Lenders Evaluate

• Land type: Raw, improved, or developed. Affects down payment and rate.
• Location: Proximity to utilities, roads, and development. Remote land is harder to finance.
• Zoning: Residential, commercial, agricultural, industrial. Affects the land's value and potential use.
• Size: Very large or very small parcels may be harder to finance.
• Buyer's plans: Lenders want to know what you plan to do with the land. A clear development plan may improve terms.
• Buyer's financials: Credit, income, and liquidity to cover the down payment and loan payments.
• Appraisal: The land's appraised value relative to the purchase price.

Can Land Equity Be Used for Construction?

If you already own land and it has appreciated in value (or you paid down the land loan), the equity in the land may be used as part of your equity injection for a construction loan. This is called "land equity credit." The lender will appraise the land's current value and credit the equity toward your down payment. Read more in our construction financing guide.

Next Step

If you're looking to finance a land purchase, submit your information for a review, or explore our land loans page.