Using Personal Loans to Buy Land: A Complete Guide

Buying land can be an exciting prospect. You may have dreams of building your dream home, starting a farm, or just owning a private piece of nature. However land can also be very expensive, leaving many wondering how they can afford such a purchase.

That’s where personal loans come in. Personal loans allow you to borrow money for any purpose, with land purchases being one possible use. While not as common as a mortgage personal loans offer some unique benefits for financing land acquisitions.

In this complete guide we’ll cover everything you need to know about using personal loans for land, including

• What is a personal loan?
• Benefits of using a personal loan for land
• Drawbacks of personal loans for land
• What credit score is needed?
• How to qualify and apply
• Alternatives to consider

Let’s get started!

What is a Personal Loan?

A personal loan is a fixed-term installment loan, usually between 1-7 years, that provides the borrower with a lump sum of cash upfront. The borrower then repays the loan amount plus interest in fixed monthly payments over the loan term.

Personal loans can be used for almost any purpose – debt consolidation, home improvements, vacations, and even land purchases. The lender does not restrict how you use the funds.

A big benefit of personal loans is that they are usually unsecured, meaning you don’t have to put up an asset like your home as collateral if you can’t repay. This makes qualifying easier than a home equity loan or mortgage.

Loan amounts for personal loans range anywhere from $1,000 up to $100,000 in some cases. Interest rates currently average 10-28%, depending on your credit score and other factors.

Benefits of Using a Personal Loan for Land

Using a personal loan for your land purchase offers several advantages:

• Fast funding – With a personal loan you can get approved and funded in days or weeks, unlike a mortgage which can take 30-60 days on average. Speed is essential when making a competitive offer on land.

• No collateral required – Personal loans are unsecured, so you don’t risk losing your home or other assets if you default. This also simplifies the application process.

• Flexible terms – You can usually find loan terms between 1-7 years, giving you flexibility on monthly payments and the repayment period. Longer terms have lower payments.

• Fewer fees – Personal loans don’t have all the complex fees and costs of mortgages and home equity loans. There’s often just an origination fee of 1-6%.

• Easier to qualify – Personal loan requirements primarily consider your credit score, income, and debts. You don’t have to provide property appraisals and extensive paperwork.

For those needing funds quickly with minimal hassle, a personal loan can be a great fit for financing land purchases.

Drawbacks of Using Personal Loans for Land

While they offer key advantages, using personal loans for land also come with some disadvantages:

• Higher interest rates – Interest rates on personal loans are higher than secured options like mortgages, typically 10-28% APR vs 3-6% for a home loan. Excellent credit can reduce rates.

• Shorter terms – The 1-7 year repayment terms mean less time to pay off the loan and higher monthly payments. Longer terms can help reduce payments.

• Lower borrowing limits – Personal loans max out at around $100,000 for most borrowers, while mortgages have higher limits to accommodate land purchases.

• Risks of debt – Taking on another monthly loan payment adds financial risk if your income was already tight. Make sure you budget accordingly.

For expensive land or those wanting the lowest rates, a personal loan may not always make sense. But they can be a lifesaver when you need funding quickly with minimal fuss.

What Credit Score is Needed for Personal Loans?

As an unsecured loan without collateral, lenders rely heavily on your credit score to approve a personal loan and determine rates/terms. Here are general credit score guidelines:

• Excellent (720+ credit score) – Qualifies for the lowest rates, usually 10-15% APR and maximum loan amounts. Highest approval likelihood.

• Good (680-719 score) – Still qualifies for reasonable rates around 15-20% APR. Approved for $10,000 – $35,000 typically.

• Fair (640-679 score) – May be approved but will pay higher interest rates and smaller loan amounts. Try securing a co-signer.

• Poor (639 and below) – Usually will not qualify for traditional personal loans. May need to look into bad credit loan options with higher rates/fees.

The better your credit, the better loan terms you can expect. We recommend a score of 680+ when applying for a personal loan to buy land if you want competitive rates and borrowing power.

Improving your credit prior to applying will pay off nicely.

How to Qualify For a Personal Loan for Land

In addition to your credit score, lenders look at these other key factors when approving personal loan applications:

• Income – Stable monthly income that is reliably 2-3x higher than the requested loan payment. Pay stubs or tax returns are required as proof.

• Debts – Your total monthly debts calculated against your income, known as your debt-to-income ratio (DTI). DTIs of 40% or lower help approval odds.

• Job history – At least 1-2 years at your current job. Longer histories provide more comfort to lenders.

• Credit history – A mix of credit types (credit cards, auto loans etc) with on-time payments boosts approval chances.

Having the above four factors in strong shape results in the best offers and highest approval rates on a personal loan. Try to improve any weaknesses before applying.

How to Apply for a Personal Loan for Land

Applying for a personal loan is simple and can be done completely online in minutes. Follow these steps:

1. Check rates – Use a lending marketplace like LendingTree to view multiple offers by entering your estimated credit score, loan amount, and zip code.

2. Compare terms – Evaluate the interest rates, monthly payments, fees, and lender reputations. Pick your favorite.

3. Complete application – Provide personal details and documents on income, debts, employment. Electronic signature speeds things up!

4. Get approved – The lender will review your application and let you know if approved within 1-3 business days usually.

5. Accept loan terms – If approved, accept the loan agreement after carefully reviewing all terms, rates, and conditions.

6. Receive funds – Once signed, the lender will deposit the loan amount directly into your bank account, often within a week.

And that’s it! The loan funds are now yours to use for purchasing your land.

Alternatives to Personal Loans for Land

Personal loans provide an easy financing option for land, but they aren’t the only choice. Here are a few other ways to fund your purchase if a personal loan doesn’t work:

• Mortgages – Banks can provide mortgages even just for land. You’ll need 20-30% down and great credit. Rates start lower than personal loans.

• Home equity loan – If you have equity available in an existing home, a home equity loan or line of credit provide low fixed rates using your home as collateral.

• USDA loans – The USDA offers special low rate loans for purchasing rural land. Credit requirements are flexible. Only for designated rural areas.

• Seller financing – Some sellers may finance a land sale directly themselves at negotiated terms. This avoids bank qualification requirements.

• Crowdfunding – If the land is for an interesting development project, crowdfunding through sites like Kickstarter may help raise some funds.

Personal loans provide fast access to capital with minimal complications. But if you need lower rates or have specific property plans, the options above may be better suited. Talk to both online lenders and your local bank to explore all your possibilities.

Final Thoughts on Personal Loans for Land

Purchasing land is an ambitious goal that often requires financing above the savings most people have on hand. Personal loans offer a direct way to access those funds quickly, with the flexibility to use them for any legal purpose.

While rates are higher than mortgages, the easy application process and faster timeline make personal loans advantageous when you find a piece of land you love and don’t want to lose out on. Just be sure to only borrow what you can reasonably afford to repay.

Follow our guide above to ensure you choose the right loan product, qualify for the best terms, and set yourself up for success as you take the exciting step of buying land! Let us know if you have any other questions.