Land Loan Interest Rates: What You Must Know in 2025

Buying land is one of the most exciting steps in real estate ownership, whether you are planning to build your dream home, start a farm, or hold the property as a long-term investment. However, financing a land purchase can be quite different from securing a mortgage on a house. One of the biggest differences is how land loan interest rates are structured.

Since land loans are riskier for lenders compared to home mortgages, the interest rates are often higher and terms may be stricter. Understanding how these rates work, the factors that influence them, and how to get the best possible deal can help you save thousands of dollars over time.

What Are Land Loan Interest Rates?

A land loan is a type of financing specifically designed to purchase a plot of land. Unlike a mortgage, which finances both the home and the property it sits on, a land loan only covers the land itself. Because the land does not produce income or value until it is developed, lenders consider it riskier, which translates into higher interest rates.

Typical rates (2025):

• Mortgage loans: around 6 to 7%
• Land loans: around 7 to 12%

For example, First Fed offers financing for residential lots and undeveloped land with competitive fixed and variable rates, while credit unions such as AgSouth Farm Credit focus on rural land purchases and may provide more favorable options for farmers or agricultural buyers.

Factors That Affect Land Loan Interest Rates

When applying for a land loan, several factors determine the interest rate you’ll receive. Lenders evaluate the type of land, your financial profile, and the loan structure before setting terms.

Type of Land

• Raw Land: No utilities or improvements; considered the riskiest and usually comes with the highest interest rates.
• Unimproved Land: May have some access to roads, water, or utilities, but still requires development moderate rates.
• Improved Land: Ready for construction with full access to infrastructure; carries the lowest interest rates.

Location and Zoning

• Residentially zoned lots in developed neighborhoods often qualify for more favorable rates.
• Agricultural or commercial land may face stricter terms due to specialized use and market risks.

Credit Score

• Borrowers with credit scores above 720 usually secure the lowest rates.
• Lower credit scores may require higher down payments and result in higher interest.

Down Payment

• Most lenders expect 20 to 50% as a down payment.
• A larger down payment reduces lender risk and often helps you secure a lower rate.

Loan Term

• Shorter loan terms usually mean lower interest rates but higher monthly payments.
• Longer terms spread out payments, resulting in smaller monthly costs but higher overall interest.

Lender Type

• Banks often have stricter requirements but established programs.
• Credit unions may offer more competitive rates and personalized service.
• Specialty lenders provide flexibility but rates can vary widely.

Using a Land Loan Interest Rates Calculator

Before applying for financing, it’s important to calculate how much a loan will cost you over time. A land loan interest rates calculator allows you to estimate monthly payments by entering details such as the loan amount, interest rate, loan term, and down payment.

Example Calculation

• Loan Amount: $100,000
• Interest Rate: 8%
• Loan Term: 15 years
• Estimated Monthly Payment: ~$955

This example shows how even a moderate loan can result in significant monthly payments, depending on the interest rate and term chosen.

Why Calculators Matter

• They help you understand affordability before committing to a loan.
• They allow you to test different down payments and loan terms to find the best fit.
• They show the long-term cost of interest, helping you make informed financial decisions.

Comparing Land Loan Options from Different Lenders

Different lenders approach land financing in unique ways. Understanding how banks, credit unions, and specialty lenders operate can help you choose the right option for your goals.

Banks

• Widely available with national reach
• Typically have stricter eligibility requirements
• May charge higher interest rates for raw or undeveloped land

Credit Unions

• Member-focused with a reputation for lower rates and fees
• More flexible in approving nontraditional borrowers
• Example: AgSouth Farm Credit specializes in rural and agricultural land financing

Online and Specialty Lenders

• Offer faster approvals and more flexible loan products compared to traditional banks
• Rates can vary widely, so comparing multiple offers is essential
• Competitor Insight: First Fed focuses on residential land loans, while AgSouth Farm Credit tailors financing for agricultural properties

Which Bank Is Best for Land Loans?

The best bank or lender for a land loan depends on your property goals, location, and financial profile. Different lenders specialize in specific types of land financing.

• First Fed

A strong choice for purchasing residential lots, especially if you plan to eventually build a home. They are known for flexible land loan programs tailored to future homeowners.

• AgSouth Farm Credit

Best suited for agricultural or rural land purchases. As part of the Farm Credit System, AgSouth offers loans designed for farmers, ranchers, and rural buyers with competitive terms.

• Wells Fargo and U.S. Bank

These national banks provide access to land loans across multiple states, but they generally have stricter credit requirements. They may be a good option for borrowers with strong credit scores seeking large-scale financing.

• Local Credit Unions

Credit unions often provide personalized service, competitive rates, and lower fees compared to big banks. They can be more flexible in approving borrowers without traditional income or with unique property needs.

Request at least three loan estimates before making a decision. Comparing offers from different lenders helps you secure the lowest possible rate and most favorable terms.

What Loan Is Best for Buying Land?

The right loan for purchasing land depends on your goals, whether you plan to hold it as an investment, build a home, or use it for farming. Each financing option comes with its own eligibility criteria, benefits, and challenges. Lenders evaluate property type, credit score, and location before approving financing. Choosing the right loan ensures you save money and match the loan to your long-term plans.

• Land Loan

A land loan is best for purchasing raw or vacant land with no immediate construction plans. These loans often carry higher interest rates and require larger down payments due to the higher lender risk. Borrowers should be prepared to show strong financial stability to qualify. Despite stricter terms, land loans provide direct financing for land-only purchases.

• Construction to Permanent Loan

If you plan to build a house, a construction-to-permanent loan may be the best choice. This financing covers both the land purchase and construction costs, offering a seamless transition into a traditional mortgage. Because the loan results in a completed property, lenders usually provide more favorable rates. It’s ideal for buyers who want to avoid juggling multiple loans.

• USDA Loan

For land in rural areas, a USDA loan can be an affordable option with government backing. These loans often require little to no down payment, making them attractive to eligible borrowers. Interest rates are competitive, and terms are designed to support rural development. Buyers must ensure the property meets USDA location and use requirements.

• Home Equity Loan

Homeowners with equity in their current property can use it to fund land purchases. A home equity loan often has lower interest rates compared to traditional land loans. However, your existing property becomes collateral, meaning there is risk if you fail to make payments. This option works best for financially stable borrowers looking for cost-effective financing.

How to Get the Lowest Land Loan Interest Rates

Securing a land loan can be expensive, but there are several strategies you can use to reduce costs and qualify for better terms. Lenders reward financially responsible borrowers with lower rates, so preparing in advance makes a big difference. With the right approach, you can improve your chances of getting an affordable loan.

• Improve Your Credit Score

One of the biggest factors lenders consider is your credit score, as it reflects your financial history and reliability. Aim to raise your score above 700 before applying for a loan to unlock better interest rates. Paying down existing debt, avoiding late payments, and lowering credit utilization are smart ways to boost your score. The higher your score, the more trust you build with lenders.

• Save for a Larger Down Payment

Lenders usually require a 20–50% down payment on land loans, but offering more can help you qualify for a better deal. A larger upfront payment reduces the risk for the lender, which often translates into lower interest rates. It also lowers the total balance you’ll need to finance, saving you money on long-term interest. Planning ahead and saving aggressively can put you in a stronger position.

• Choose a Shorter Loan Term

Loan terms directly influence interest rates, and shorter terms often come with significant savings. While shorter repayment periods result in higher monthly installments, they reduce overall interest costs. Many lenders are willing to offer lower rates on loans that are repaid more quickly. If your budget allows, choosing a shorter term can help you pay off the loan faster while saving money.

• Shop Multiple Lenders and Negotiate

Not all lenders offer the same rates, so comparing multiple options is one of the best ways to save money. Traditional banks, credit unions, and online lenders may all have different terms, making it important to shop around. Once you receive offers, don’t hesitate to negotiate and ask for better conditions. Lenders often adjust rates to stay competitive, which can work in your favor.

• Explore Local or Government Programs

In some cases, state or local agencies may provide financing options for land purchases. Government-backed programs are designed to support borrowers and may offer lower interest rates or flexible terms. These programs can be especially useful for agricultural, rural, or residential land development. Checking available programs in your area can help you find opportunities that private lenders may not provide.

Real-World Examples of Land Loan Interest Rates

The cost of borrowing for land depends on factors such as property type, down payment amount, loan term, and lender requirements. Below are a few scenarios that illustrate how these factors impact affordability.

1. Residential Lot in Texas

• Purchase Price: $60,000
• Down Payment: 20%
• Interest Rate: 8% over 15 years
• Estimated Monthly Payment: ~$458

This example shows how a modest residential lot with a reasonable down payment can result in manageable monthly payments over a long-term loan.

2. Farmland in Iowa

• Purchase Price: $200,000
• Down Payment: 30%
• Interest Rate: 9%
• Estimated Monthly Payment: ~$1,265

In this case, farmland typically requires a larger down payment and comes with higher rates due to agricultural risk, resulting in a higher monthly obligation.

3. Recreational Land in Oregon

• Purchase Price: $100,000
• Down Payment: 25%
• Interest Rate: 10% over 10 years
• Estimated Monthly Payment: ~$1,061

This scenario highlights how recreational properties often carry higher interest rates and shorter loan terms, making monthly payments steeper compared to residential land.

Common Mistakes to Avoid with Land Loans

• Not checking zoning laws before buying.
• Underestimating additional costs like surveys, permits, and insurance.
• Skipping pre-approval and assuming financing will be easy.
• Choosing the first lender you meet without comparing options.

Conclusion

Financing land is very different from financing a home. With higher risk comes higher land loan interest rates, but careful planning can help you save money. Improving your credit score, making a larger down payment, and shopping among lenders are proven strategies to lower your costs.

Before applying, use a land loan interest rates calculator to understand what your payments may look like. Consider whether a traditional land loan, a construction-to-permanent loan, or a USDA-backed option fits your situation.

Whether you are investing in farmland, buying a lot for your future home, or purchasing recreational property, knowing how land loan interest rates work will help you make the smartest financial decision.

FAQs 

Are land loan interest rates higher than mortgage rates?

Yes. Land loan rates are usually one to three percent higher.

Can you refinance a land loan?

Yes. Many borrowers refinance once land is improved or construction starts.

Do land loans require a higher down payment?

Yes. Most lenders expect 20–50%, depending on land type and borrower profile.

How do banks decide land loan interest rates?

They consider land type, location, credit score, loan amount, and repayment term.

Can you buy land without a loan?

Yes. Many people pay in cash for smaller parcels to avoid interest.