Land Loan
A loan that finances the purchase of vacant land rather than an existing structure.
What is Land Loan?
A land loan is a type of financing used to purchase a vacant parcel of land on which the borrower intends to build, hold as an investment, or use for agricultural or recreational purposes. Land loans are considered riskier than traditional mortgages because unimproved land generates no income and is harder to sell quickly if the borrower defaults. Lenders compensate for this increased risk by requiring larger down payments (typically 20–50%), charging higher interest rates, and offering shorter loan terms than standard home mortgages. Land loans are categorized by the type of land: raw land (no utilities or access), unimproved land (some infrastructure but not ready to build), and improved land (utilities and access in place, ready for construction). Improved land loans are easiest to obtain; raw land loans have the strictest terms.
Example
An investor purchases a 10-acre raw land parcel for $120,000, putting down 40% ($48,000) and financing the remaining $72,000 with a land loan at 9.5% over 10 years. The higher rate and larger down payment reflect the lender's elevated risk compared to a standard residential mortgage on a home with existing improvements.
Source: Investopedia — Land Loan