Land Loan Term Lengths: How Long Do You Have To Pay Back Your Land Loan?

Buying land to build a home or start a business is an exciting prospect With raw land, you can build the exact home or facility you want from the ground up However, land loans work differently than traditional mortgages in a few key ways, including repayment term lengths.

When you take out a land loan, also called a lot loan, you’ll need to pay back the loan within a set number of years The term length on a land loan is typically much shorter than a 30-year mortgage. Understanding the repayment timeline before you apply can help you pick the best loan for your needs and budget

In this article, we’ll explain common land loan term lengths, what impacts the length you’re offered, and how term length relates to your payments.

Typical Land Loan Term Lengths

Most land loans have terms lasting around 2 to 10 years. However, some land loans may allow terms up to 20 years in certain cases. Here are some examples of common land loan repayment terms

• 2 years
• 3 years
• 5 years
• 10 years
• 15 years
• 20 years

A 2- or 3-year land loan term is considered short-term financing. These ultra short repayment periods are most common.

With a term this short, you’ll need to refinance into a longer land loan or construction loan fairly quickly once you’re ready to start building. Short terms limit your risk as a borrower, but mean you can’t wait too long before taking the next steps with your property.

5-year land loan terms are also fairly common. This gives you a little more flexibility than a 2- or 3-year loan. But you’ll still need refinancing or construction financing lined up within about 5 years to avoid having to pay the full balance.

On the longer end, 10-, 15- or 20-year land loan repayment terms do exist. These enable you to hold onto your land for a longer period before needing to refinance or obtain construction financing.

The maximum term length you qualify for will depend on factors like the type of land you’re buying, your finances, and the specific lender.

What Impacts Your Land Loan Term Length?

As a rule of thumb, the more developed or “improved” your land is at the time of purchase, the longer the repayment term your lender may offer. Raw land with no infrastructure will come with shorter terms. Here are some of the key factors that determine available land loan term lengths:

Type of Land

The three main types of land are:

• Raw land – Vacant land with no development or access to utilities
• Partially improved land – May have limited infrastructure or old structures but lacks utilities
• Improved land – Land developed with utilities, ready for building

You’ll generally get the shortest terms on raw land, longer terms for partially improved land, and the longest terms for improved, ready-to-build land.

For example, you may only qualify for a 3-year term on a raw land loan but a 10-year term on an improved lot loan.

Loan Program

Certain loan programs limit the available repayment terms on their land loans. Two examples:

• USDA land loans – For buying rural property to build a home, USDA land loans come with 5-year terms.
• VA land loans – The VA construction loan program only allows terms up to 5 years on land you’ll build on within 2 years.

So even if the property is improved and ready for construction, some program guidelines cap term lengths.

Credit Score and Income

As with any type of mortgage or loan, your credit and finances impact your terms. Borrowers with higher credit scores and income may qualify for longer land loan repayment terms.

Those with poorer credit or unsteady income are seen as higher risks by lenders, so they limit term lengths to 2 to 5 years.

Loan-to-Value (LTV) Ratio

Your loan-to-value ratio compares your loan amount to the appraised value of the land. The higher this percentage, the riskier the loan is for a lender.

Borrowers with very high LTV ratios, like 90% to 100%, will likely get shorter term offers of 2 to 5 years. Those who put down larger down payments can access longer terms.

Lender Guidelines

Every lender sets their own standards for land loan eligibility and terms. One lender may cap terms at 5 years for all land loans. Another may offer qualified borrowers repayment terms up to 15 or 20 years.

Shopping around with multiple lenders can help you find one that offers better term options. Local banks and farm credit organizations are good options for land loans.

Shorter Terms Mean Higher Payments

When reviewing land loan term length options, keep in mind that shorter terms equal higher monthly payments. Let’s compare two examples:

5-year land loan:

• Loan amount – $100,000
• Interest rate – 7%
• Monthly payment – $1,998

15-year land loan:

• Loan amount – $100,000
• Interest rate – 7%
• Monthly payment – $872

With the same loan amount and rate, the payment jumps by 129% when going from a 15-year term to 5 years.

And with ultra short 2- or 3-year terms, the payments skyrocket even more. Make sure you can manage the higher payments before committing to a very short land loan repayment timeline.

Land Loan Terms Impact Construction Timelines

A major consideration with land loan term length is how it impacts your ability to start building on the property. The short repayment periods limit how long you can wait before taking action.

For example, with a 3-year land loan, you’ll need to line up long-term financing within 3 years through either:

• Refinancing into a 10+ year land loan
• Obtaining a construction loan
• Paying off the land loan entirely

You can’t just pay interest and extend the short-term loan. You must refinance or pay in full by the end of the term.

This means you can’t purchase land too far in advance unless you refinance the land loan. For someone buying land years before building, a longer initial term of 10+ years is best.

Others plan to build within 1 to 3 years. For them, a short-term 3- to 5-year land loan works fine since they’ll be ready for construction financing by the time the term ends.

Think about your project timeline and when you plan to break ground. Aligning your land loan term with your construction plans is crucial.

Land Loan Terms Vs. Mortgage Loan Terms

It’s helpful to understand how land loan repayment terms differ from standard mortgage terms.

Most primary home purchase mortgages are offered with long 30-year terms. Even a “short” mortgage term is usually 15 years.

But with land loans, short 2- to 5-year terms are the norm. And 10- to 20-year land loans are still considered longer terms.

This reflects the increased risk lenders take on with land loans compared to mortgages. With a mortgage, the home itself acts as collateral that can be foreclosed on.

But with a vacant land loan, there’s no dwelling securing the debt yet. There’s an increased chance the borrower won’t follow through on development plans.

By limiting terms to just a few years, lenders reduce the chance of ending up upside-down on high-risk land loans. Borrowers have less time to default before needing to refinance or pay off the loan.

Tips for Getting a Longer Land Loan Term

If your goal is to secure a longer 10+ year land loan term, keep these tips in mind:

• Pick an improved property – Developed land with utilities will qualify for longer terms than raw land.

• Shop lenders – Find lenders like farm credit institutions that offer longer land loan terms.

• Improve your credit – Boosting your credit score can help you qualify for a longer term.

• Make a large down payment – Putting down 20% or more reduces lender risk for better term chances.

• Show strong finances – High income and low debt make you look like a lower risk borrower to lenders.

Taking some time to boost your financial credentials can really pay off with a longer land loan term. Just run the numbers to make sure the longer timeline aligns with your construction plans.

Weighing the Pros and Cons of Land Loan Terms

Like any financial product, shorter and longer land loan terms each come with advantages and disadvantages. Consider these when deciding which term length works best for your situation.

Short Term Land Loans

Pros

• Lower overall interest costs due to shorter payback period
• Pay off the loan quickly through refinancing when ready to build
• Lower risk for lenders means easier to qualify

Cons

• Large balloon payment due at end of term if not refinanced
• Monthly payments will be much higher
• Must refinance within short timeline to avoid balloon payment

Long Term Land Loans

Pros