If you’re planning to build on raw or unimproved land for income-generating use — such as developing a commercial complex or expanding a farming operation — you need a land loan, not a standard commercial property mortgage.
How are land loans different from traditional CRE loans?
Down payments for land loans are generally larger.
Approval requirements are also stricter, and loan terms tend to be shorter.
This is because you’re financing a plot that may have no buildings and no infrastructure, which means that it also has no immediate cash flow.
This makes the deal a lot riskier in the eyes of lenders, who will then be a lot more cautious in deciding whether to approve your loan and in structuring the terms and conditions.
Types of land loans are available for commercial & agricultural uses
The type of parcel you’re buying directly affects the kind of financing you’ll need and what lenders expect from you.
Raw Land
Raw land is completely undeveloped — there are no power lines and no utilities, and often no roads.
These types of assets are among the hardest to finance because they are the riskiest.
Most lenders will require at least 30% down, sometimes even 50%.
Unimproved Land
Unimproved land has a few basics in place. There might be a dirt road or limited access to water.
But it’s still considered high risk, so down payments generally range from 25% to 35%.
Improved Land
Improved land already has access to roads, power, and utilities, which lowers their riskiness as a real estate asset class. Expect lenders to ask for 20% to 25% down.
Distinct types of land loans and lenders for different types of development plans.
Agricultural Land Loans
Agricultural loans are geared toward borrowers who want to build a working farm or ranch.
These loans are usually issued by specialized lenders who understand the seasonal cash flows and regional ag needs of borrowers in this segment.
Commercial Land Loans
Commercial land loans are designed for borrowers buying land with a non-agricultural business purpose in mind.
This is the type of loan you need if you want to buy a parcel for future development into retail property, an office space, a warehouse, a mixed-use building, etc.
The loan will be underwritten based on how the land will generate revenue once built out, not on any current use or existing structures.
The Gateway Rail Industrial Park in Laredo, Texas, is a good example of how raw land can be turned into a major commercial asset.
Developers saw its location near key freight corridors and began preparing it for industrial use — laying out roads and utilities and then building rail access for logistics tenants.
They used public financing through a municipal utility district to fund infrastructure and brought in a rail operator as a development partner.
What do land loan lenders want to see in your application?
- Your credit score – If it’s lower than the typical 680 minimum, your application may be rejected. Some lenders may still work with you if the rest of your profile is strong.
- A large down payment – This shows that you’re invested in the project and that you’re willing to share the risk. It can also help you access better terms.
- Your business plan – Come prepared to explain exactly what you’ll do with the land. Are you building storage units? Starting a greenhouse operation? The lender needs to see exactly how you plan to use the land to generate revenue.
What should you check before you buy raw or undeveloped land?
Due diligence is critical because raw/undeveloped land isn’t always as “blank” as it looks.
You can’t judge it by surface appearance or price alone.
What really matters is whether you’re legally allowed to build on it, and whether the ground conditions and zoning will support your future plans.
That’s why it’s important to review the following before you commit to purchasing land and start taking out a land loan:
Zoning
- If it’s agricultural, there may be restrictions on livestock density and chemical use. Exactly where are you allowed to build structures?
- If the land is zoned commercial, will the city require you to pay for connecting to main roads, adding turn lanes, building sidewalks, or installing stormwater systems before they’ll approve your project?
Access and boundaries
Verify the exact property lines and confirm that you have legal access either via a public road or a permanent easement.
Just because there’s a visible path or dirt road doesn’t mean you’re allowed to use it.
If you don’t have formal access, you might not be able to get permits or even enter the property legally.
Utilities
Don’t assume that basic utilities are accessible from the land you want to buy.
Check if water, power, sewer, and internet are available at the site or nearby.
If they’re not, you’ll be the one responsible for paying to install them (sometimes across long distances).
Factor this in because it can slow down your project and make it much more expensive.
Environmental factors
Does the land flood easily? Does it fall under environmental protection rules?
If yes, you might not be allowed to build, or you may be required to get special government approval.
Make sure that you’re aware if the land contains protected features like wetlands or endangered species habitats, as these can limit how you can use it.
You might also have to take extra steps in some cases — like creating buffer zones and controlling runoff — if the site poses environmental risks.
You’ve got more options than you think
If you’re serious about a land purchase and need capital to back it, reach out to our team here at Private Capital Investors.
We provide financing to commercial and ag borrowers nationwide.
✓ Rates start as low as 7%
✓ Approvals can happen in as little as 14 days
✓ Underwriting is straightforward
We’re open to a wide range of deals — everything from poultry and citrus farms to cattle operations, orchards, and hobby farms.
If you’re buying rural land for full-time or part-time use, or looking to scale what you already own, we can help you get the capital in place.
We also fund alternate-use ag properties and land that might be overlooked by traditional lenders.
Don’t hesitate to tell us about your project.
We’ll see if we can structure a loan that fits the land’s potential.
Sources
- https://www.dsldmortgage.com/blog/understanding-land-loans/
- https://www.loopnet.com/cre-explained/finance/land-loans-for-commercial-properties/
- https://privatecapitalinvestors.com/land-loans/
