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Can I Get a Personal Loan To Buy Land?

There are several ways to cover a land purchase, including a personal loan.

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By Emily Guy Birken

Written by

Emily Guy Birken

Writer

Emily Guy Birken is an authority on student loans and personal finance. Her work has been featured by Forbes, USA TODAY, Fox Business, MSN Money, and MarketWatch.

Edited by Jared Hughes

Written by

Jared Hughes

Editor

Jared Hughes has over eight years of experience in personal finance. He has provided insight to Fox Business, New York Post, and NewsBreak.

Updated October 2, 2024

Editorial disclosure: Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as “Credible.”

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Credible takeaways

  • There are multiple types of loans available for those looking to buy land, including personal loans, land loans, and construction loans.
  • Land loans are good if you plan on purchasing land, but have no immediate plans to build on it. 
  • There are three types of land loans: raw land, unimproved land, improved land.
  • You should consider a construction loan if you plan to build on the land. The repayment term is for the length of construction. After, it may convert to a traditional 15- or 30-year mortgage.

If you're looking to purchase land to build a home or commercial property, there are several potential ways to pay for it, such as taking out a personal loan, land loan, or construction loan.

Each of these has its own upsides and downsides. Personal loans, for example, are typically unsecured, so no collateral is required. Additionally, personal loans tend to have a faster approval process and time to fund than land loans, which can take up to a week or more to get your money. If you use a personal loan, however, you may not be able to borrow enough to cover the full amount, and you could pay a higher rate.

Personal loans vs. land loans vs. construction loans

There are a few types of loans that can be used to purchase land, including:

  • Personal loans: Disbursed as a lump sum that can be used how you wish.
  • Land loans: Designed for borrowers who want to purchase land but don’t want to build on it immediately.
  • Construction loans: Available to potential homeowners who want to purchase land and immediately build a house on it.
Personal loans
Land loans
Construction loans
Use
Almost any personal expenses (some lenders might have limitations)
For land purchase without immediate construction plans
For land purchase and immediate construction
Interest rate type
Fixed
Fixed
Variable
Interest rates
6% to 36%
7% APR or higher
6% APR or higher
Down payment
None
20% to 50% (depending on the lender)
10% to 20% (depending on the lender)
Repayment terms
1 to 7 years (depending on the lender)
Varies(depending on loan type)
12 to 18 months then converts to a traditional mortgage
Loan amounts
$600 to $200,000 (depending on the lender)
Depends on land value, down payment amount, and lender maximums
No specific maximum

Personal loans

Personal loans are installment loans that can be used to cover almost any personal expense. You can typically borrow $600 to $100,000 or more and have one to seven years to repay it, depending on the lender.

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Keep in mind

Most personal loans are unsecured, meaning you don’t have to worry about collateral. However, because these loans are riskier for lenders, you’ll generally need good to excellent credit (a FICO score above 670) to qualify.

If you decide to take out a personal loan to buy land, be sure to consider multiple lenders to find the right loan for you.

Learn More: What Is an Unsecured Loan?

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Land loans

Land loans are specifically designed for borrowers who are purchasing land but don’t have immediate plans to build on it. There are three main types of land purchases, each of which has its own kind of land loan. These include:

  • Raw land: This is land that hasn’t been developed and has no connection to the electrical grid, sewers, or roads. This kind of land can be less expensive, but the loans typically require a higher down payment (often 20% or more) and come with higher interest rates. If you’re interested in a raw land loan, be prepared to provide the lender with extensive documentation of your plans to develop the land.
  • Unimproved land: This kind of land is somewhat more developed than raw land and usually has some amenities and connections to utilities. However, it generally won’t have an electric meter, natural gas meter, or phone box. Because unimproved land loans are less risky to the lender than raw land loans, they tend to have lower interest rates. However, you’ll still likely need to come up with a down payment of 20% or more as well as have a detailed plan for development.
  • Improved land: This type of land is already set up with access to utilities, roads, sewers, and other major amenities, which makes it less of a risk to the lender. But keep in mind that this also makes it more expensive than raw or unimproved land. An improved land loan will typically come with a lower interest rate and require less of a down payment than other types of land loans. On the other hand, rates on these loans can be much higher than you’d pay on a traditional mortgage.

Land loans typically come with an initial repayment term of two to five years followed by a balloon payment at the end of the term. There are also some lenders that might offer longer terms if you plan to build a home on the land.

Because land loans are considered riskier than traditional mortgage loans, they can come with more stringent requirements and higher interest rates.

This means you’ll likely need to have excellent credit, a complete plan for the development of the land, and a substantial down payment.

Construction loans

A construction loan is used to purchase land, then fund the construction costs of building a new home or structure. The repayment term for a construction loan usually is only as long as the construction itself — usually 12 to 18 months. After the construction is finished, the loan may convert to a traditional 15- or 30-year mortgage.

Though construction loans are seen as less risky by lenders than land loans, they’re still more expensive than traditional mortgages. You’ll generally need good to excellent credit, a 20% down payment, and a detailed plan for the construction, including schedule and budget projections.

Also note that construction loans generally have variable rates, which means your rate could fluctuate according to market conditions.

Check Out: Personal Loan Calculator: Estimate Your Payments On a Loan

Pros and cons of a personal loan to buy land