How to buy vacant land
A loan to buy a vacant lot is a mortgage used to purchase or refinance either an improved or unimproved parcel of land. The difference between these types of parcels is:
- An unimproved lot does not have utilities (water, sewer, electric, gas, etc.) run to the lot line.
- an improved (or entitled) lot does have utilities already run to the lot.
This page focuses on vacant lots that will be used as residences. The house that will be situated on the lot can one of many different kinds, including a stick-built home, modular home or various others, and can be built by obtaining a construction loan at a later time. If you are searching for lenders that offer land or lot loans for a commercial use, find commercial lenders with Lender Search.
Borrowers looking to buy vacant lots can typically find mortgages with lower LTVs than for lots that already have homes on them. This type of loan carries more risk because there is a high chance that the buyer will not complete the project, will lose interest in developing the vacant lot or will walk away from the mortgage which is then foreclosed. Lenders try not to be in the business of buying and selling real estate. Therefore, the buyer will need additional “skin in the game” to get a vacant lot loan, which typically takes the form of a larger down payment, as a percentage of the total cost of the lot.
Vacant lots, whether improved or not, typically cost much less than a lot with a home on it. Loan amounts tend to be smaller and lenders may be unwilling to commit resources to fund a loan of a relatively small size. So, borrowers interested in buying a lot of land will generally benefit from working using a mortgage broker with significant experience to find the right lender for this type of loan.
If the borrower has a prime credit profile, use Lender Search to find prime lenders. If the buyer is a real estate investor, self-employed, retired, or has any non-conventional loan parameters, then alternative credit may be considered by a Non-QM lender, which can also be found with Lender Search.
What is a hard-money vacant lot loan?
A hard money loan is a purchase or refinance mortgage offered at relatively low LTVs that are underwritten on the value of the vacant lot, not on the full documentation of the borrower’s credit. These loans are attractive to borrowers because they can close quickly and require less documentation than a conventional loan. Hard money loans are often short-term, typically offering repayment periods of three years or less. Therefore, the buyer will usually plan to build, improve or sell the vacant lot before the end of the repayment term.
What are some common vacant lot loan terms?
- Improved lot, 70% LTV, up to $350,000, long or short-term repayment options
- Fixed rate, max. 65% LTV, max. amount $400,000 with no min. FICO score required
- Urban infill vacant lots preferred, max. 50% LTV, same-day LOI
- No documentation loans for 17-year term from $15,000 to $1,000,000
- Residential areas only, urban, buildable lots, 70%-75% LTV maximum
- Asset-based loans, 7-day close, no credit needed, nonowner occupied or vacation property
Which lenders offer vacant lot financing?
Many lenders offer financing for borrowers purchasing vacant land. Depending upon the loan scenario and profile of the borrower, a bank, nonbank or hard money lender may serve them best. Use Lender Search to find lenders for these scenarios:
- If the buyer or owner is self-employed, wants to use their assets to underwrite the loan or if there’s been a recent negative credit event, find a Non-QM lender.
- If a buyer or owner with prime credit wants to purchase or refinance a vacant lot, find a prime residential lender. Set the Property Type to “Land/Lot,” then modify it with the Land/Lot Type Menu to get the most accurate results.
- If the purchase or refinance of the vacant lot is time-sensitive, there is 50% or more unencumbered value (equity) in the property or the buyer/owner wants asset-based underwriting, then consider finding a private money lender.
- If the vacant lot is for commercial use, find a prime commercial lender. Set the Property Type to Land/Lot. In the advanced Land/Lot menu, select “Bare/Raw/Vacant” for a list of lenders that can fund the loan.
Using Lender Search will help you discover the best lender for the specific loan scenario. When you find a lender, click on the “Contact” button to immediately email the scenario details and your contact information to the lender. The lender will contact you to discuss the loan.