Why a Land Buyer’s Financing Is Harder Than a House Buyer’s
A house buyer and a land buyer both need a loan, but they are not underwritten the same way. Federal banking regulators treat raw land as fundamentally riskier collateral than a house, and that risk shows up directly in how much of the purchase price a lender is even allowed to finance.
The Down Payment Gap: 65% LTV on Raw Land vs. 85% on a House
Federal banking regulators’ interagency real estate lending guidelines set a supervisory loan-to-value ceiling of just 65% for raw land loans and 75% for land development loans, compared with 85% for 1-to-4 family residential and other improved property. In practical terms, that means a land buyer typically has to bring 35% or more of the purchase price as a down payment, versus roughly 15% on a comparable house purchase.
| Loan type | Supervisory LTV ceiling | Implied minimum down payment |
|---|---|---|
| Raw land | 65% | 35%+ |
| Land development | 75% | 25%+ |
| 1-4 family residential (improved) | 85% | 15%+ |
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Book a Real Estate Fit CallA Real Lender Example: What a $100,000 Lot Loan Looks Like
MIDFLORIDA Credit Union’s published example shows a $100,000 fixed-rate lot loan at 20% down, amortized over 20 years at a 7.500% rate, 8.410% APR, with the full remaining balance due as a balloon payment after just 5 years. That remaining balance is $87,707.90, meaning after 60 monthly payments the buyer has paid down only about $12,292.10 of the original $100,000, roughly 12.3% of the loan, despite 5 full years of on-time payments. The credit union’s adjustable-rate lot loan alternative requires a steeper 35% minimum down payment instead of the fixed-rate option’s 20%.
Arkansas Federal Credit Union’s Three Balloon Tiers by Loan Size
Arkansas Federal Credit Union structures its land and lot loans as fixed-rate balloon mortgages only, tiered by loan size, all requiring a minimum 25% down payment and capped at 10 acres.
| Minimum loan size | Amortization | Balloon due |
|---|---|---|
| $20,000 | 10 years | 3 years |
| $50,000 | 15 years | 4 years |
| $100,000 | 20 years | 5 years |
Why the Financing Friction Makes Land Deals Close Slower
Most land transactions still close within 60 days according to NAR’s Realtors Land Market Survey, based on 2023 survey-cycle data, the most recent closing-timeline figure available, a tighter window than a house sale often runs. The real friction is not the closing itself, it is the buyer’s own financing readiness: a 25 to 35% down payment is a much bigger cash hurdle to clear than a typical residential down payment, and it can slow a buyer down before the deal even reaches the title company.
For a wholesaler, that means qualifying a land buyer’s financing readiness early matters more than it does on a house deal. Ask directly whether the buyer is paying cash or needs a lot loan, and if financing is involved, confirm they understand the larger down payment requirement before the deal is under contract, not after. It is also worth flagging the balloon structure to a financed buyer directly: a buyer who does not realize a 3-to-5-year balloon is coming can get blindsided at refinance time, and a buyer who gets burned on financing is a buyer who does not come back for a second deal.
What this means for you
- Raw land loans cap at 65% loan-to-value and land development loans at 75%, versus 85% for a house, meaning a land buyer typically needs 35% or more down versus roughly 15% on a comparable house.
- On a real $100,000 lot loan example, the buyer still owes $87,707.90 after 5 years of payments, having paid down only about 12.3% of the original balance before the balloon comes due.
- Most land deals still close within 60 days, per 2023 NAR survey data, so the real friction is the buyer’s own financing readiness, not the closing process itself.
Sources
The external data in this guide draws on the sources below. Figures described in the text as estimates or industry triangulations are directional and are not attributed to a single dataset.
- Cornell Law School, Legal Information Institute, "12 CFR Appendix A to Subpart A of Part 365, Interagency Guidelines for Real Estate Lending Policies"
- MIDFLORIDA Credit Union, "Florida Lot Loans"
- Arkansas Federal Credit Union, "Land and Lot Loans"
- National Association of Realtors, "Realtors Land Market Survey"