How Long Can You Get a Land Loan For? Everything You Need To Know

Purchasing land to build a dream home or vacation property on down the road can be an exciting prospect But land loans work differently than home loans, so it’s important to understand the key differences when exploring your options In this comprehensive guide, we’ll walk through everything you need to know about land loan terms, from how long you can get financing to what impacts the length of your loan.

What is a Land Loan?

A land loan, also known as a lot loan, allows you to purchase a vacant plot of land either to build a home on in the future or to use recreationally Land loans are secured loans, meaning the land itself acts as collateral on the loan

Land loans differ from construction loans and traditional mortgages in a few key ways

• Purpose: Land loans allow you to purchase vacant land only, while construction loans finance building a home on a property you already own. Traditional mortgages let you purchase a completed home.

• Term: Land loans typically have much shorter repayment terms of 1-15 years compared to the 30 year terms common with mortgages.

• Collateral: With land loans, only the land acts as collateral. For mortgages and construction loans, the completed home also serves as collateral.

So in short, land loans give you time to purchase land now to hold or develop later, without requiring immediate construction.

How Long Can You Get a Land Loan For?

The maximum term on land loans is usually around 15 years. However, most lenders prefer to offer terms of just 1-5 years. There are a few key factors that determine the term you may qualify for:

Credit Score

As with any type of financing, your credit score plays a major role in the loan terms lenders will offer. The higher your score, the longer repayment term you can likely obtain. Here are some general credit score guidelines:

• Excellent credit (720+): Qualify for max terms up to 15 years
• Good credit (680-719): May qualify for 10-15 year loans
• Fair credit (640-679): 5-10 years terms
• Poor credit (<640): Less likely to qualify; 3-5 year terms

Of course, each lender sets their own requirements, but having better credit gives you a wider range of options. Boosting your score into the good or excellent range expands the financing you can access.

Loan-to-Value Ratio

Your loan-to-value ratio compares the amount you wish to borrow to the appraised value of the land. The higher this percentage, the riskier the loan is for lenders.

To get approved for a longer repayment term, you’ll need a lower LTV. This means making a larger down payment of 25-35% or more to drop your LTV. Coming up with more cash upfront gives lenders confidence and allows them to extend loan terms.

Intended Use

What you plan to do with the land also affects the term length lenders permit. If you’ll be developing the land for commercial use or building a home shortly after purchase, you may qualify for longer repayment periods. Having a near-term plan reassures lenders.

If you’re purchasing the land for recreational use and have no set timeline for building, shorter 1-5 year loans are standard. The further out your plans, the more risk for lenders.

Loan Program

Certain loan programs, like those backed by the USDA or VA, may allow longer land loan terms than conventional financing. Government-backed loans designed for rural properties or veterans can provide more flexible terms.

Securing financing through specialized programs oriented around your location or status may help extend the period for repayment. Research programs available in your area or that you may qualify for based on military service or other factors.

What Impacts the Length of Land Loans?

Now that we’ve reviewed the typical 1-15 year terms available, let’s discuss the specific factors that determine where your particular loan will fall within that range:

Credit Health

As we touched on above, your credit standing plays a pivotal role in qualifying for a land loan with an extended term. Key credit factors lenders review include:

• Credit score: Aim for a score of 720 or higher for the best rates and terms. Under 640 and approval becomes unlikely.

• Payment history: On-time payments on all current debts help demonstrate you can manage another loan. Avoid late payments.

• Credit utilization: Keep balances below 30% of limits on revolving credit. High utilization raises risk.

• Credit age: Having long-standing accounts helps versus only new credit.

• Hard inquiries: Limit applications for new credit before applying for a land loan. Too many inquiries can lower your score temporarily.

Improving your credit health before applying gives you the best shot at your ideal loan term. Pay all bills on time, lower balances, and correct any errors on your credit reports.

Income and Debt Levels

Lenders need to assess your income and existing debts to determine if you can manage the new loan payment. They’ll review factors like:

• Debt-to-income ratio: Total monthly debt payments (including the new loan) divided by gross monthly income. Aim for a DTI below 43%.

• Income documentation: Expect to provide W-2s, tax returns, and pay stubs to validate your income is sufficient.

• Monthly payments: Any high existing payments on large debts like student loans or auto loans raise concerns.

• Down payment funds: You’ll need to source and document funds for your down payment with account statements or other paperwork.

Having less debt and steady verifiable income helps satisfy lender requirements for a longer term.

Loan Program

As mentioned above, certain loan programs may offer more flexibility on lengths than traditional financing. Some options to research that can provide extended terms if you qualify include:

• USDA loans: For low-to-moderate income borrowers purchasing rural property.

• VA loans: For eligible military members and veterans.

• Seller financing: Provided by the property seller instead of a bank.

Finding the right loan program fit allows you to maximize the term available based on your situation.

Property Considerations

Factors directly related to the land you want to purchase can also determine the term length you qualify for:

• Property condition: Raw vacant land carries higher risk than improved land ready to build on, limiting term.

• Location: Rural properties with limited demand may get shorter terms than land in high-growth areas.

• Appraised value: The assessed market value sets the LTV ratio that impacts term limits.

Purchasing improved land in desirable locations signals a safer investment to lenders, earning you more years to repay the loan.

Tips for Maximizing Land Loan Term

If your goal is to secure financing with the longest term possible, here are some tips that can help:

• Shop lenders: Compare offers from multiple lenders and programs to find the best loan term. Credit unions or rural lenders are good options.

• Ask about exceptions: If a lender’s stated maximum term is lower than you need, ask them if exceptions or extensions may be possible based on factors like your credit score, down payment, or property.

• Pay down debts: Reducing credit card and auto loan balances can improve your DTI and unlock longer terms.

• Increase down payment: Coming up with a larger down payment to get a lower LTV can allow longer repayment periods.

• Add a co-signer: Including a co-signer with better credit may help qualify or improve your term length.

• Fix credit issues: Resolving collections, payment problems, or errors can significantly boost your score to reach term-friendly credit tiers.

With smart preparation and research, securing land loan financing for up to 15 years is possible. Understanding the factors that dictate term limits is key to getting loan duration that aligns with your goals and financial situation.

Bottom Line

When it comes to land loan terms, typical maximum durations fall in the 1-15 year range. Where your specific loan ends up within that span depends on elements like your credit health, income, debt levels, down payment amount, property considerations, intended land use, and loan programs available.

Factoring these elements into your planning, research, and preparation can position you to obtain the repayment period you need to comfortably finance your dream property. With a strategic approach and diligent effor