When purchasing land in Florida, you’ll likely look at land loans to finance your property.
It’s important to understand how land loans differ from traditional mortgages, whether you plan to:
- Build a home
- Invest in future development
- Hold the land as an asset
- You’re planning other land purchase projects
In this guide, we’ll outline nine key factors to know before applying for a land loan.
1. Land loans vs. lot loans: Understand the difference
It’s essential to start by distinguishing between land and lot loans, as they refer to different types of land financing.
Lot loans
These are used to finance developed land with access to utilities, such as water, electricity, and sewage.
Since the land is already prepared for construction, lot loans typically have more favorable terms.
Land loans
These are for purchasing undeveloped or remote land without access to infrastructure.
Because of the higher risk, land loans often come with higher down payments and interest rates.
You may need a land loan when purchasing undeveloped land, while a lot loan could be better for developed lots.
2. There are different types of land loans
Land loans aren’t one-size-fits-all. Depending on your plans for the property, you may need a specific type of loan. The three main types are:
Raw land loans
These are for financing completely undeveloped land without utilities or infrastructure. Lenders see these loans as riskier, leading to higher down payments (up to 50%) and interest rates.
Improved land loans
These loans are for land with basic infrastructure like utilities. They tend to have more favorable terms than raw land loans, making them ideal if you plan to develop the property soon.
Construction loans
A construction loan might be best if you intend to build immediately.
It covers the land purchase and construction costs, with funds disbursed in phases. Upon completion, the loan often converts into a traditional mortgage.
3. Land loans require larger down payments
The down payment is one of the biggest differences between land loans and home mortgages.
Because land loans involve greater risk for lenders—especially for raw land—you’ll need a larger upfront payment, typically between 20% and 50% of the total purchase price.
Here’s why the down payment is higher for land loans:
- The lack of a physical structure to serve as collateral increases lender risk
- Land values can fluctuate more than improved property values.
- Lenders require a significant financial commitment from buyers to reduce the risk of default.
4. Interest rates for land loans are higher
In addition to larger down payments, land loans usually have higher interest rates than home mortgages.
Several factors influence your rate, including land type, credit score, and the lender’s terms.
- Raw land loans: Given the lack of development and infrastructure, raw land loans carry the highest rates.
- Improved land loans: These typically have lower rates than raw land loans but still tend to be higher than traditional home mortgages.
Since rates can vary significantly, comparing offers from multiple lenders is essential.
Even a small difference in interest rates can save you substantially over the loan’s term.
5. You don’t always have to build right away—but it can help
A common misconception is that land loans require immediate construction.
While building is not always mandatory, some lenders may include terms about when construction must begin.
- Some lenders might require you to build within two to five years of securing a lot loan.
- Other lenders may allow you to hold the land without a set timeframe but could charge higher interest rates for that flexibility.
If you plan to build in the future, you can often roll your land loan into a construction loan, streamlining the financing process.
6. The importance of location when buying land
Location heavily influences both loan terms and your plans for the property.
Land in rural areas without infrastructure, such as water or roads, often requires a raw land loan.
In contrast, land near cities or suburban areas with utilities may qualify for improved land loans with better terms.
When buying land, consider proximity to utilities, zoning regulations, and the area's growth potential. These factors impact the loan type and the property's long-term value.
7. Consider your long-term financial goals
Are you planning to hold onto the land as an investment, build a home, or develop it for commercial purposes? Each of these goals may require a different type of financing.
For instance, if you’re buying land purely for investment and have no immediate plans to develop it, a raw land loan might be your best option.
On the other hand, if you plan to build a home soon after purchase, a construction loan may make more financial sense.
By aligning your loan choice with your long-term plans, you can ensure that your land investment meets your future needs.
8. Lender requirements for land loans
Land loan lender requirements tend to be more stringent than traditional home mortgages.
In addition to larger down payments and higher interest rates, lenders may ask for additional documentation to ensure the buyer can repay the loan.
Common land loan requirements include
- Detailed property information: Lenders often want to see surveys, land assessments, and zoning classifications.
- Clear development plan: Some lenders require buyers to present a development plan, particularly if construction is expected within a set timeframe.
- Financial stability: Given the higher risk associated with land loans, lenders will assess your credit score, income, and financial history more closely.
9. Land loan eligibility requirements
Unlike traditional mortgages, land loans cannot be backed by government-sponsored entities like Fannie Mae or Freddie Mac.
This means lenders face more risks, and that translates into stricter eligibility requirements on borrowers, including:
- A strong credit score, typically 720 or higher
- A low debt-to-income ratio (DTI)
- A down payment of at least 15%, potentially up to 50%
- Proof of stable, consistent income
- Approved plans for land use
MIDFLORIDA’s approach to land loans
MIDFLORIDA offers flexible, competitive loan options for both undeveloped land and lots ready for construction.
Our specialists have deep knowledge of the Florida real estate market and can help you find the right loan for your needs and goals.
Explore land loan options with MIDFLORIDA
Ready to explore your financing options? Contact MIDFLORIDA to learn more about land loans.
