You’ve probably heard that land loans come with higher interest rates than traditional mortgages, and that’s true. But, that doesn’t mean they aren’t worth considering. In fact, for many people, a land loan can be the first step toward a dream home, a new business venture, or a long-term investment.
Let’s take a look at why a land loan might be the right move for you.
1. Build What You Want, Where You Want
One of the biggest reasons people choose land loans is the freedom to build a custom home or structure. Buying land gives you the flexibility to choose your ideal location. Whether it's a quiet rural property, a lakefront view, or a neighborhood development site, you design the layout how you want.
2. Skip the Starter Home
If you're financially ready to buy a starter home, consider directing those funds toward a land loan instead. It might be a good idea as opposed to investing in a property you plan to move out of eventually. Starting with a land loan allows you to begin building equity in a location where you can construct your dream home. This approach can be more strategic, letting you to allocate resources toward your forever home. Tailor this investment to your preferences, rather than settling for a temporary solution.
3. Potential for Long-Term Investment
Land tends to appreciate over time, especially if it’s located in a growing or up-and-coming area. As communities expand and infrastructure develops, the value of land in those regions often increases. This makes it a potentially smart long-term investment, even if you don’t have immediate plans to build.
Holding on to a plot now gives you a head start before demand and prices rise. Whether you’re waiting for the right time to build or looking to diversify your portfolio, owning land offers a level of stability that’s hard to match with other types of property.
4. Less Competition = More Opportunity
Unlike the housing market, the land market often comes with less competition. This gives buyers more leverage, especially if you're working with a local lender who understands the market. You might even be able to snag a great deal on land before prices rise.
5. More Financing Options Than You Might Think
While it’s true that land loans work differently than traditional mortgages, there are still flexible options out there. Some lenders offer land loans with balloon payments or adjustable rates. There are also construction options that let you roll your land loan into a home construction loan when you're ready to build.
The kind of land you purchase plays also a big role in the financing terms you are likely to receive. Raw land, which is completely undeveloped without utilities or road access, is the riskiest. Therefore, raw land usually comes with higher interest rates and larger down payments. Unimproved land has some infrastructure, like road access, but still lacks utilities. Improved land includes essential services like water and electricity. This makes it the safest option in the eyes of lenders and leading to better rates and loan options.
If you're unsure which type of land you're working with or want to see the differences in action, this quick video breaks it all down:
6. It’s Easier to Find Local Expertise
When it comes to land loans, working with a lender who understands the local market can be a major advantage. Local banks, credit unions, and regional lenders often have more experience with the specific zoning laws and development trends in your area. While national institutions may also offer land loans, the process is more personal when dealing with a lender who’s familiar with your region. Comparing several lenders, both local and national, can help you find the best fit for your needs.
Still Weighing Your Options? Start with the Numbers
While land loans may not be for everyone, they can be a smart, strategic choice for the right buyer. A land loan offers the flexibility and opportunity to bring your vision to life. If you're still deciding whether it's the right financial move, understanding how land loan interest rates work is a great place to start. You can read more about that in our blog post, What’s the Interest Rate of Land Loans?