There are numerous reasons why you might want to purchase land. Whether you are looking to build a new home, start a business or farm, purchasing land is an investment in your future. If you’re looking for the most affordable way to purchase large amounts of land in one transaction, then a land contract loan might be right for you!

In this guide, we find out Can You Get Mortgage To Buy Land, how to buy land with no money down, personal loan to buy land, and can you get a mortgage to buy land and build a house.

Can You Get Mortgage To Buy Land

Land is a great investment and can be purchased in many different ways. One of the most popular methods is through a personal mortgage. If you’re looking to buy raw land that has no buildings on it, then a land contract loan might be right for you!

Land can be purchased in any number of ways, most typically through a personal mortgage.

The term mortgage is typically used to describe the loan that is secured by real estate. Mortgages can be used to purchase raw land, improved land, or even subdivided parcels of property. A mortgage can also be used as a way of financing the construction of a building on your lot.

There are many different types of mortgages available for various situations and goals.

Like houses, land usually requires some form of financing which is called land contract.

A land contract is not the same thing as a mortgage. A land contract is a type of loan, but it is used exclusively for unimproved properties. Land contracts are common in rural areas. The lender will consider an un-improved property in a developed area to have a higher risk than the same piece of unimproved land in a rural area because there are fewer things that could go wrong with it.

This type of loan is used for raw land that has no buildings on it.

A land loan is a type of mortgage that you can use to finance the purchase of raw land. If you want to build your own house, then this type of home loan may be right for you!

In contrast, if you already own an improved property (one that has a house on it), then a traditional FHA or VA mortgage would be the best choice for financing your real estate needs.

If you don’t already have an existing home, but plan on building one on raw land with no buildings (an un-improved property), then this type of loan would allow for construction costs as well as purchasing costs.

The lender will consider an un-improved property in a developed area to have a higher risk than the same piece of unimproved land in a rural area.

The location of the property.
What type of property it is. If a piece of unimproved land in an urban area is being considered, the lender will consider it to be a higher risk than if it were at least partially developed (houses on one or both sides).
Whether there are restrictions on the land that would prevent its use as collateral for a mortgage. For example, if your neighbor has already built his house right up against yours and you have no room left to build another house yourself.

The type of loan you get for raw land will depend on what your plans are for the property.

The type of loan you get for raw land will depend on what your plans are for the property. If you want to keep it as cash flow or rent out for investors, it may be considered an investment property and you’ll have to get an investment property loan.

If this is a vacation home or retirement spot, then you might be able to finance with a second home mortgage.

If you’re purchasing the property to keep as cash flow or rent out for investors, it may be considered an investment property and you’ll have to get an investment property loan.

What is an investment property loan?

An investment property loan is a home loan that allows homeowners to purchase one or more properties with the intention of renting out those properties for income.

Why would you need an investment property loan?

If you plan on purchasing a second home in order to rent it out for additional income, then having access to an investment mortgage will make your life easier when buying real estate. This type of mortgage allows homeowners who are looking at acquiring multiple properties at once much easier because they won’t have to worry about different mortgage documents each time they buy another house or condo unit within their portfolio. By getting all of your financing through one institution instead of several (or even dozens), paperwork can be streamlined while making sure that all loans are being paid on time and according how much money was borrowed during closing costs etcetera; This makes managing multiple homes easier than ever before because there isn’t any confusion over whether someone has paid off their monthly installment yet.”

Unimproved property that is zoned for residential use can be financed with a standard home loan.

When you’re buying land, you can use your existing home loan. You may have to meet some additional requirements, however.

Are there additional requirements?

Yes. Unimproved property that is zoned for residential use and is located in a developed area can be financed with a standard home loan. Unimproved property is the same as raw land, which means it requires no improvements (roads or utilities) and has not been cleared of debris or vegetation. The property must be zoned for residential use, meaning it’s within a city or town’s boundaries and usually consists of one lot containing two acres or less (about .4 hectares). The property must also be in an established area with roads and other infrastructure nearby—that way you won’t have to worry about living off the grid! One last thing: If your lot has more than one building on it (like when two houses are connected), make sure each house has its own sewer system—otherwise you’ll need to pay extra fees upfront when applying for financing through most lenders

Yes, in fact, we specialize in this kind of financing.

A: Yes, in fact, we specialize in this kind of financing.

B: We are a full service mortgage company and can help you get the best loan for your situation.

C: We can provide the best rates and terms available.

D: We offer many different types of loans including; refinancing, home equity, investment property, cash-out refinance, land contract.

how to buy land with no money down

First things first, Even if you are on a shoestring budget and dreaming of investing in land, the simplest way to find low-priced land is by listing sites. Plenty of land listing sites are available, in which you can find and purchase a property that has not been sold for over a year.

Other listings go very quickly when you work with a reputable private land seller. Look out for a financing option if you get the best deal and understand the necessities. Apart from that, We’d recommend you ask for property access or request a delayed closing so that you can save funds to purchase the land.

The idea of choosing land as an investment is tempting. Likewise, buying land with little money. It may take longer than expected. To ensure you don’t run out of options, we’re going to discuss other lucrative real estate investment options.

Why Is Investing in Real Estate a Good Idea?

Investing in real estate is considered a good way of diversifying assets. It is an extremely inaccurate assumption that you need a lot of money to make a worthy real estate investment. Also, most people are afraid of the risk associated with the investment. Those who do decide to invest in real estate (even with little money) are about to embark on a great investment journey.

Low-Risk Learning

If you start to invest little sums in real estate, you will be greatly interested in all this opportunity has to offer. This chance of learning more about real estate is great for new investors. You can learn more and even make mistakes without risking a massive amount of money.

Diversification of Income

It is a great idea to not put all your eggs in one basket. That has a huge potential of incurring losses. Real Estate has proved to give good results over time. It can be one of your chosen forms of investment along with other options such as stocks, etc.

High Returns via Real Estate Appreciation

It is disadvantageous to think that just because you have little money, you shouldn’t invest it in real estate. Arguably, the opposite of it is undeniably true. The earlier you start investing, the better results you will receive in the future.

As the value of real estate grows naturally by 3 to 5% in a year due to high demand and limited land, it will continue to yield great returns to people who invest in it.

Quick Overview- Types of Land Investment

Land investment is different with well-funded investors as they have plenty of choices and the budget to support it. They can purchase land for recreation, building a house, or investment without breaking the bank.

Now, you must be curious about what land ownership opportunities are available for investors with a tight budget? How can they find the right piece of land to invest in and get a decent return within budget? What to know before buying land? To get a better understanding of this, you should be aware of some land investment categories.

Residential and Commercial Land Investments

Both residential and commercial land investments can be lucrative and can deliver higher returns. For small investors, there are plenty of land development opportunities that satisfy their budget and time constraints.

Real Estate Investment Trust or REIT is an excellent choice for small investors, as it is very low-priced, doesn’t need direct management, and can be obtained or sold on a real-time basis. These investments, however, prevent landowners from using the land freely. If you want to experience land ownership, residential and commercial development can be your choice.

Row Crop Land and Land for Livestock

Your next investment option is buying land for running a livestock operation or row-crop farming to use your land freely and generate constant income. Still, there are complications investors need to deal with; the overall cost of operating livestock is high, making the investment riskier.

It’s more likely the large-scale farming operation will put extra stress on a landowner. Thus, it’s recommended to small investors to avoid large-scale operations.

Many small investors may not like the idea of traditional row-crop or farming operation. For them, agricultural investment options can be profitable as it offers exposure to farming enterprises. To give you an idea, some funds provide exposure to coffee, wheat, cotton, sugar, Kansas City wheat, canola oil, corn, cattle, cocoa, lean hogs, and soybean meal, feeder cattle, and soybeans.

If you are interested in investing in specific traditional farming operations, use exchange-traded notes (ETNs). You can leverage exposure to soft commodities, including sugar, cotton, coffee, corn, wheat, and soybeans, with iPath Bloomberg Agriculture Subindex Total Return ETN (JJATF).

Besides that, Small investors can appropriate investment exposure to cattle and hogs by iPath Series B Bloomberg Livestock Subindex Total Return ETN (COW). There are some risks involved in these investment options. Thus, thorough due diligence is crucial to know potential risks and rewards to safeguard your funds when making such investments.

Small Farm Investment Opportunities

Small investors who desire steady cash flow and want to enjoy land ownership must invest in timber farms, recreational land, orchards, mineral development lands, and vineyards. Such investments pay off as investors get the opportunity to adjust the scale of purchase and generate a stable income stream.

Investors might consider Exchange-traded funds (ETFs) and Exchange-Traded Notes (ETNs) for small-scale farming operations.

Real Estate Crowdfunding

Real estate crowdfunding lets you add a property to your real estate portfolio without investing a huge sum in it. There are several online investment platforms available that enable you to invest in a real estate property with other investors. There are various large commercial real estate projects which are managed by the developers themselves.

You can think of it as loaning money along with other small investors to the real estate developer. This generally is for a pre-defined time frame and the minimum amount to be invested is quite affordable.

One of these crowdfunded real estate platforms is Fundrise. The popularity of this platform is elevating daily as it lets the investors start investing in multi-million dollar projects with a minimum of $10.

Similar to this, another minimum investment crowdfunded real estate platform has Arrived. This platform is popular for offering investment opportunities in Single Family Homes. The minimum investment you can make is $10 and can learn the ins and outs of the residential properties. There are various other crowdfunding platforms that you can opt for such as CityVest, Streetwise, CrowdStreet, Yieldstreet, etc.

Hard Money Lenders

Arranging investment funds from hard money lenders is a viable option. These are private lenders who are known for providing short-term loans for real estate investment. Having fewer guidelines and qualification requirements than a bank or other financial institution, these are easy to secure.

These loans are provided at higher interest rates as the lenders are willing to take up risky projects too. The typical rules include paying back the lenders within 6 to 24 months the entire sum along with interest. Most investors in such situations either sell the property for a profit or refinance it.

Equity Partnerships

A partnership is a common but creative path adopted frequently in real estate financing. The alliance strategy works by finding someone who is doing or has done what you want to do and working for them. You can’t get such benefits for free, of course. Instead, you can provide value to your partner.

The typical situation in such scenarios is one person investing funds in a property and the other managing the property. If you do not have the capital to invest but are willing to invest your time in the management of the property, then you can look for passive investors to partner with you.

Another scenario of such an alliance is when multiple investors join their resources and that accumulated cash is used to purchase a property. You can find such equity partners by joining real estate groups and increasing your network through events, etc.

Seller Financing

Seller Financing is a fruitful way of investing in real estate when an investor is unable to secure funds through loans. Here, the investor and the seller come to a mutual agreement regarding the payment terms, interest rate, consequences of default, repayment timeline, etc.

You just need to focus your efforts on finding a seller that is willing to take payments over a period of time or take a lower down payment in exchange for shorter payment terms or a high purchase price. This works great when the deal is a win-win for both parties.

Microloans

Microloans are another viable option in real estate investments that comes into existence due to the peer-to-peer economy. Generally, these loans are taken to gear up a new business or a startup to arrange the resources necessary to generate further growth.

As you will be investing using small sums, you won’t be burdened with high-interest rates or high qualification requirements. These are open to being issued by a single lender or by multiple lenders at a time.

Real Estate Investment Trusts (REITs)

The REITs are the companies that have multiple investors to combine their financial resources to be able to invest in real estate properties. This is a good source of passive income for investors who are wondering how to buy land with no money. Here, instead of purchasing a property, you can invest in the companies that build or manage the properties. One typical advantage of REIT is liquidity.

When you are the owner of a 30% resort then you will find it quite hard to pull your money out. Especially if the resort is at loss, very few people will buy your share or the entire resort. But the REITs are easy to sell like shares of stock. It is highly advised to buy a variety of REITs such as firms that build malls, hospitals, parks, etc.

This will enable you to diversify your income without having to manage anything. You can refer to it as a pool of real estate assets that are managed by real estate professionals, traded freely on SMEs. You can invest in private REITs or public REITs or both.

Private REITs are difficult to liquidate and require a higher sum of investment. But the major benefit it provides is that the future price of the shares is predictable.

Public REITs are similar to stock market investing. You can purchase a share and can sell it anytime you want. The price of these shares is extremely volatile. The major downside of investing in REITs is that a good share of profits is distributed to the administrative overheads. The rest is shared with the shareholders.

The BRRRR Method

The BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat. This is a smart strategy where the first step is to buy a property that needs some substantial repairs. You can find such properties at low prices as they are in some way damaged. Once you complete the purchase at a discounted price, you can renovate it as per the standard rental requirements.

After renting the place, you get the needed rent via your tenants which you can use to refinance in another distressed property. This process can be repeated as many times as you want and you will never bear extreme costs. These rental properties will yield a good level of passive income every month. As easy as it may sound, you must do thorough research before diving into a purchase.

You should be able to answer quite a few questions before investing in a distressed property. How to determine the after-repair value of a property, How much rent to charge, What must be the cost of the repairs, Which property is worth the effort, etc are some of these questions. You must also figure out ways to get the initial sum i.e the amount to purchase the property and to make the necessary repairs.

personal loan to buy land

Land Loans: Using a Personal Loan to Buy Land

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been reviewed, commissioned or otherwise endorsed by any of our network partners.

If you need funding to buy a plot of land, you can potentially use a personal loan. However, it might not be your first choice when compared to land loans and construction loans, which typically carry lower interest rates.

Using a personal loan to buy land does come with benefits, though. Personal loans don’t require collateral, so you don’t risk losing an asset if you default on the loan (although you do risk ruining your credit). Plus, personal loans carry less restrictions than land loans and mortgages.

Using a personal loan to buy land

Personal loans are generally unsecured, meaning they don’t require collateral. They are a flexible form of financing, as they can be used for a variety of reasons, such as debt consolidation and home improvement financing — even a land purchase.

Since these loans for land don’t require collateral, lenders rely more heavily on your credit score to determine your eligibility as a borrower. Lenders typically look for the following when analyzing potential personal loan candidates:

Community banks, credit unions and larger banks may be more inclined to consider personal loan borrowers who, along with having strong credit and income, are existing customers with well-managed savings accounts or other loans (such as a traditional mortgage) with their institution. Online lenders offer personal loans to those who qualify based on creditworthiness and other factors specific to the borrower’s financial profile.

How your credit score affects personal loan affordability and eligibility

Personal loans tend to come with higher APRs (annual percentage rates), which makes them less affordable, particularly for low-credit borrowers. Because there are no assets to be seized if the borrower defaults on the loan, personal loan eligibility will also vary depending on the borrower’s creditworthiness.

Borrowers with a strong credit profile will generally see lower offered APRs (which includes interest and other fees) than consumers with lower credit scores. See just how much APRs vary for people in different credit bands, according to the LendingTree Personal Loan Offers Report:

To get your best deal on a personal loan when buying land, it’s important to shop around and compare interest rates. The lower your APR is, the less you’ll pay over the life of the loan. LendingTree lets you compare offers from up to five lenders — depending on your creditworthiness — so you can get your best terms on a personal loan.

Personal loans vs. land loans

A personal loan is an unsecured loan that can be used to finance many different ventures, while a land loan is specifically issued to finance a land purchase. While you may be familiar with the basics of securing a mortgage to buy a home, it doesn’t work the same way if you aren’t purchasing a lot with a home already built on it.

Getting a land loan can be a lot more complicated — and expensive — than getting a traditional mortgage. These loans are often considered risky, in part because land is a more illiquid asset. It can be difficult to sell, particularly if it is raw (undeveloped) versus improved (developed, with access to infrastructure including roads and water supply lines).

Big banks, community banks and credit unions may be strict when it comes to making land loans, especially for raw land, and not all will offer such financing. Personal loans are offered based on creditworthiness, which means they can be used to pay for many different things. However, you should consider that personal loans typically have a cap at $50,000, and how much you’re approved to borrow will also depend on your credit score.

Should I choose a personal loan for land?

Financing land with a personal loan may be cheaper

Traditional land loans often involve higher fees, such as appraisal, processing, underwriting and title insurance. If you’re looking for a relatively inexpensive loan for a smaller plot of land — say, $20,000 — a personal loan may be more beneficial than a land loan as it wouldn’t make much sense to spend thousands in fees for a loan of that amount.

Many personal loans carry no fees at all, which would make them advantageous in this situation, particularly if you have excellent credit and can qualify for the lowest possible APRs offered by personal loan lenders.

Personal loans may offer shorter terms than land loans

Personal loans tend to have shorter terms, typically 12 to 60 months, than some other loans. A land loan also generally has a shorter term than a traditional mortgage, although some can offer longer terms than the average personal loan.

Borrowers who are looking for a longer-term, potentially lower-interest loan for a more expensive plot of land are not as likely to get a personal loan to finance this expense.

Ready to shop for a personal loan? Click below.

Alternatives to land loans and personal loans to buy land

USDA loans

Borrowers may want to look into U.S. Department of Agriculture (USDA) Section 523 and 524 loans for plots of land meant to build housing sites in rural areas. These types of USDA loans are short-term loans (two years) that can come with favorable interest rates: 3% for Section 523 loans and below market rate for Section 524 loans.

The 523 loan is considered only for self-help housing, which means the borrowers will provide their own labor for which to construct a home. The 524 loan is for lower- to moderate-income borrowers, and there are no limits on method of construction.

Home equity loans or home equity lines of credit (HELOCs)

If you have equity in your home, you could consider getting a home equity loan or home equity line of credit — also known as second mortgages — to potentially secure a lower interest rate than you would get with a personal loan for purchasing land.

Home equity loans, which are funded in a lump sum, typically have longer terms than the average personal loan, about five to 15 years. HELOCs, which function like a credit card, often have a draw period of five to 10 years, with a repayment period around 10 to 20 years. However, you would also have to pay closing costs, which are about 2% to 5% of the loan, with either option.

SBA 504 loans

Small business owners who are looking to purchase land for their venture could consider opening an SBA 504 loan. These types of loans can be used for purchasing lots, as well as:

The borrower is required to make a 10% down payment, the government puts down 40% of the loan through a certified development company, and a lender finances the other half of the loan. These loans also come in a much higher amount than other types of land loans. Most businesses can qualify for up to $5 million, while certain industries (including small manufacturers and green energy projects) can qualify for up to $5.5 million.

can you get a mortgage to buy land and build a house

A USDA construction loan can finance the land, build your home, and serve as your long-term mortgage — essentially rolling three loans into one. Plus, there’s no down payment required and only one set of closing costs.

However, these loans can be hard to find. And you need to be an eligible borrower building in an eligible rural area. Finding a lender could be challenging, too.

Read on to learn more about USDA construction loan rules and rates, and other loan types that could potentially be a better option.

What is a USDA construction loan?

A USDA construction loan can be an affordable way to buy land and build a home. It combines financing for the land, construction, and a fixed-rate mortgage into one loan product.

This program, which is backed by the U.S. Department of Agriculture, can also be referred to as a:

There are some serious benefits to a USDA construction loan if you qualify; no down payment is required, mortgage insurance is affordable, and USDA rates are typically low.

However, USDA construction loans are pretty rare; you may be hard-pressed to find a lender offering one. And USDA has strict requirements for the home buyer and the property being built.

With all these restrictions, some borrowers will find other types of construction loans to be an easier path to homeownership. But for the right person, a USDA construction loan could be ideal.

The important thing is to explore all your options and find the right loan product for you.

Benefits of a USDA construction loan

Brandon Mushlin with BuildBuyRefi.com explains that a USDA construction loan makes it easy for an eligible borrower to acquire land, have a new home built, and finance that finished home over up to 30 years — all in one simple loan.

You only have to pay for closing costs once, since a single closing is involved, and only one qualification and one appraisal are required.

“You can either find land to place under contract, use current land you already own, or use land deeded over to you from family to combine with your chosen and approved builder to construct your home,” he says.

According to USDA, funds can be used to build and purchase single-family homes, including eligible condos and manufactured homes.

Like other loans backed by the U.S. Department of Agriculture, the USDA construction loan offers up to 100 percent financing. That means qualifying borrowers don’t have to make a down payment.

In addition, you aren’t obligated to make payments while the home is being constructed.

USDA construction loan drawbacks

On the downside, these loans are difficult to find and rarely offered by lenders, according to Richie Duncan, senior loan officer with Nationwide Home Loans Group, a division of Magnolia Bank.

“USDA construction loans require patience on the part of everyone involved. They take longer to close, could involve Realtors, insurance agents, city or county permitting requirements, builder approval, multiple underwrites of your credit file, appraisals, and more,” Duncan notes.

“And the interest rate you’ll be charged will likely be higher than for normal purchase and refinance loans on existing homes.”

However, you might not be stuck with that higher interest rate forever.

After your home is built (at least 220 days later) and after making six on-time payments, if market conditions allow “you can opt for a streamline refinance or rate-and-term refinance to lower your interest rate, if possible,” adds Duncan.

While there are many requirements and restrictions involved, “once obtained, this is one of the best loans for a borrower to build their dream home with little to zero paid out-of-pocket,” says Duncan.

“As a result, you can save your liquidity, increase your landholdings, and avoid the higher 10 to 25 percent down payment requirements that other traditional lenders may stipulate with more associated risks.”

Can you buy land with a USDA construction loan?

A USDA construction loan allows you to purchase both the land and the home. But some restrictions apply.

First, the land must be in a USDA-approved location. These areas must be “rural in character,” though many small towns and suburbs qualify.

“Also, this is not a loan that you can use to purchase land now and build on at a later time. Once you close on the loan, you are expected to start building when given the green light, which is usually quickly,” says Duncan.

If you want to purchase land first while you are shopping for builders, this is allowed. You can take out a loan elsewhere to buy the land, and then a USDA construction loan lender can include the payoff of that land balance in your new loan.

“If you pay cash or already own the land free and clear, you cannot get cash back or be paid back. That would involve a cash-out loan, which is not allowed in any version of a USDA loan,” Mushlin cautions.

Note that it’s not necessarily easier to get a USDA construction loan if you already own the land. Although, it might be easier to get another type of new construction loan.

“Having your land paid off or owned outright will reduce your loan-to-value ratio, which means you won’t need 100 percent financing,” Duncan continues.

“This increases your possible equity position and will lower your payment further than a borrower who is purchasing new land or paying full price for the land.”