Skip to main content

How to Get a Loan for Land in Four Steps

Thinking about building your dream home? There are many new neighborhoods and areas across Kansas that make the idea of building extremely attractive. But how can you make that dream a reality?

When it comes to building, the first step is finding and purchasing land. And, as with any home purchasing plan, this usually involves a loan. But how do you get a loan for land?

Keep reading to learn more about land loans, how to get a loan for land, and whether this is the right step for you.

What Is a Land Loan?

A land loan is a type of financing used to buy land. Think of it this way: instead of buying a finished home, you’re buying a plot of undeveloped land. A land loan, also known as a lot loan, is an option when you don’t plan on building on the property immediately.

What does this mean? You can apply for a land loan if you want to buy a piece of land to build on it, whether for residential or commercial purposes. These types of loans, which work similarly to a standard mortgage, are used to secure the land with the intent to build on it in the future.

Types of Land

There are a few different types of land loans based on the condition of the area in which you want to build.

  • Raw land loan: Raw land is completely undeveloped—a blank slate. There are no roads, electricity, sewers, etc.
  • Unimproved land loan: This type of land is slightly more developed than raw land but not by much. It may include some basic elements, such as electricity or access roads.
  • Improved land loan: This type of land is ready to use. It has everything needed to build a home and all the required amenities. These are usually plots that a developer has improved with the intent of selling to people who want to build.

The different types of land loans come with different types of risks. Be sure to weigh all your options and consider the circumstances before choosing the type of land to purchase.

Land Loan vs. Construction Loan

A land loan can sometimes be confused with a construction loan. The main difference between the two loans is timing.

A construction loan is a short-term loan used when you’re ready to get started building right away. You have your plan and are prepared to begin the project.

Land loans, on the other hand, are a better choice when you’re not ready to jump into the project immediately. You know you want the land, but still need to plan out your project. Buying the land with a Credit Union of America land loan will let you use the land equity for a down payment on a construction loan when it comes time to build.

Four Steps to Get a Land Loan

While a land loan may seem somewhat similar to a standard mortgage loan, there are specific rules and requirements that must be met. That’s where Credit Union of America can help! Take a look at these steps on securing a loan for land.

Step 1: Decide on Financial Institution

Just as with any type of loan, you have options when it comes to loan issuers. Banks, credit unions, and other organizations offer land loans. Which one will work best for you?

At Credit Union of America, we think your best bet is to go with us! As your local credit union, we know the Kansas area. After all, we live and work in the communities we serve! Our specialized financial service representatives are here to help you make the best choices for your future.

We are proud to offer lot and land loans to our members. If you’re looking to build in Wichita or the surrounding area, we can help! Our land loans include 5-year or 10-year conventional fixed-rate terms as well as local underwriting and servicing.

Step 2: Meet the Loan Requirements

Loan requirements for a land loan are a bit more strict than standard mortgage loans. Since there is not a home to use as collateral, you need a stronger record and a larger down payment. There are also some different provisions that must be considered.

When applying for a land loan, keep in mind the following:

  • Credit score: Land loans require borrowers to prove a good credit score—usually 700 or above—before being approved for a land loan. Need tips on improving your credit score? We have tools and resources to help you do just that!
  • Land use: When applying for a land loan, you will need to explain how you intend to use the land. For instance, if planning to build a house, you should have developed plans even if you’re not ready to build yet.
  • Down payment: As opposed to standard mortgage loans, you are required to put down 30% in a down payment but this amount can be as high as 50%.
  • Debt-to-income ratio: A strong debt-to-income ratio (DTI) can help you secure a land loan. DTI is the percentage you get when you divide all of your debt by all of your income. It’s recommended that your DTI be 43% or less if applying for a land loan.

Step 3: Submit Your Application Online

Credit Union of America makes it as easy as possible for you to apply for a land loan. You can apply online or we are also available over the phone or in person.

No matter how you decide to submit your application for a land loan, you will have to make sure to have the correct documents and information, including:

  • Driver’s license for each applicant with legal names and contact information
  • Federal income tax returns for the past three years
  • Financial statements listing total assets and liabilities

Step 4: Review the Loan

Once you apply for the loan, you can have a decision back in as little as a week. At this point, it’s important to review your loan terms and make sure everything lines up for you and your lender.

After the loan’s rates are determined and you have been approved and have agreed to the loan’s terms, it’s time to make the down payment and then pay back the loan over the agreed-upon term and rate.

Land Loan Pros and Cons

It’s exciting to think about building new on fresh land! But is it the right choice for you? As you think about how to get a land loan, consider the pros and cons of this type of financing.

Land Loan Pros

If building a new home is your dream, there are some clear positives to taking out a land loan.

  • Time: Taking out a land loan allows you to purchase the land but doesn’t require you to start building. The loan lets you stake your claim but also gives you the time needed to fully develop your dream.
  • Build on your terms: A land loan allows you to build your own home or business instead of buying something that already exists that may not fit your needs or wants.
  • Gives you options: A land loan lets you purchase the land and not build on it right away. It could cost you more and limit your options if you buy the land outright or take out a construction loan whereby you must start building immediately.

Land Loan Cons

Of course, everything isn’t perfect. Some cons must be weighed when applying for a land loan.

  • Can be more expensive: Land loans require higher down payments and sometimes higher interest rates.
  • More stringent requirements: Credit score, down payment, credit history. There are stricter requirements for all of these to meet the qualifications of a land loan.
  • Not as readily available: Not all financial institutions offer land loans. But you’re in luck because Credit Union of America does!

Get a Loan for Land With Credit Union of America

If you’ve reviewed the steps and are comfortable with the pros and cons, the next step is to contact us to get started on your land loan. Credit Union of America is excited to work with you to help you buy that slice of Kansas land and get started on the path to your dream home.

Now that you know how to get a loan for land, check out Credit Union of America’s lot and land loan options and benefits.


View All Articles