Who actually lends on dirt
National banks mostly pass on vacant land, especially raw acreage, because the collateral produces no income and resells slowly after a default. The practical lenders are community banks and credit unions in the county where the parcel sits, agricultural lenders where the ground qualifies, and the seller. Local institutions matter here more than anywhere else in real estate finance: a loan officer who knows what lots in that township have been trading for will lend against a parcel a national underwriter cannot price at all. Start your search close to the land, not close to home, and bring the parcel details to the first conversation: acreage, road frontage, utilities, zoning. The quote changes with every one of them.
Terms track the parcel grade
Lenders sort land into grades, and every term on the sheet follows from the grade. An improved lot has utilities and road access in place; raw acreage might need a well at $5,000 to $15,000, a septic system at $5,000 to $25,000, and a power run of $10,000 to $50,000 before construction can start, which is exactly why raw parcels demand the biggest down payments.
| Parcel grade | Typical down payment | Typical term | What it means |
|---|---|---|---|
| Improved lot | 10-20% | Up to 20 years | Utilities and road access in place; build after closing |
| Semi-improved | 20-30% | 10-15 years | Some infrastructure; budget for the rest before building |
| Raw acreage | 30-50% | 5-15 years | No infrastructure; highest rates and most likely to carry a balloon |
Ranges reflect common practice among community banks and credit unions; individual lenders vary.
A $150,000 parcel, financed two ways
Take an improved lot at $150,000 with 20 percent down, leaving a $120,000 loan at 8 percent. Fully amortized over 15 years, the payment is about $1,147 a month and total interest over the term runs near $86,400.
Now write the same loan the way many raw-land lenders do: the payment still comes from a 15 year amortization, so it stays at $1,147, but the whole remaining balance is due at year 5. After 60 payments you still owe roughly $94,500. The low payment did not make the loan cheap; it deferred the reckoning. At the balloon date you pay cash, refinance, or renegotiate, and if land values have dropped or credit has tightened, the refinance may not be there. If your term sheet has a balloon, plan the payoff from day one instead of assuming a lender will show up in year 5.
Seller financing when the bank passes
The seller is often the most willing lender on a hard-to-finance parcel. Typical negotiated terms land around 10 to 30 percent down, rates of 5 to 10 percent, and 5 to 15 year lengths, with a faster close and far less paperwork than a bank. The catch is title: under a land contract the seller keeps it until you finish paying, so the seller's own mortgages, tax liens, or bankruptcy can reach the property you are paying for. Record the contract, buy title insurance, and pay an attorney to read the agreement before you sign. A home equity loan against property you already own is the other common workaround, and it sometimes prices below a stand-alone land loan.
The meter runs while you hold
Vacant ground bills you every month and pays you nothing back. Property tax continues, though an agricultural or timber classification can cut it sharply where you qualify. Vacant-land liability coverage is cheap and worth carrying. The interest is the big line: on that $120,000 balance at 8 percent, the first year costs close to $9,500 in interest alone, none of it building anything. Add mowing or clearing to satisfy local ordinances and the occasional survey or perc test. A parcel you build on within a year costs a fraction of what the same parcel costs held for a decade, so your realistic holding period, more than the purchase price, decides whether the deal works.