When buying land with a loan, lenders have specific criteria that borrowers must meet to qualify for a land loan. The Federal Deposit Insurance Corp. (FDIC) sets minimum down payment requirements for land loans, though individual lenders may decide to set more stringent standards. The FDIC standards are:

• Raw land: Minimum down payment of 35%
• Unimproved land: Minimum down payment of 25%
• Improved land: Minimum down payment of 15%¹

It is important to understand if the land you are interested in is registered or not, as lenders will not approve funds on unregistered land. Registered land means it is ready for you to build your home once you own the land as all services are connected and road infrastructure is complete².

How do land loans work?

Like a traditional mortgage, land loans require a down payment, are secured by the property they purchase and paid back over time. You’ll work with a loan officer, who’ll help you apply for the loan and check your credit. Land loans can come from banks or credit unions, specialty lenders or government programs. However, not every mortgage lender offers land loans.

“The borrower would follow a similar process to that of a traditional home loan, but would not have the same number of lenders available to shop,” said Sue Smith, division manager at Amerifirst Home Mortgage’s Loan Center. “Typically the requirements are more stringent — more money down, better credit scores required.”

That’s because regardless of where they come from, land loans typically represent a bigger risk to the lender. You’ll face higher down payment requirements and will likely need a better credit score to qualify.