Do you dream of a place where you can watch the stars at night unencumbered by city lights? What about having a natural paradise literally in your backyard?

You don’t have to save your entire life to have this kind of lifestyle. Consider land financing to help make your dream a reality. Whether you want 5 acres or 5,000, there are more than 450,000 land-only listings across the United States. So, you have a wide range of options.

Keep reading to learn more about how to buy land as real estate and land financing with our guide.

How Land Financing Differs From Purchasing a Home

The major difference between a loan for buying land as real estate versus purchasing a home is how the loans are structured. Lenders can use a home as collateral for a mortgage. Purchasing land does not necessarily come with a building on the property to serve as something of value that a lender can sell if a buyer defaults on the loan.

Therefore, there are fewer options and guidelines are stricter when it comes to land financing. Some lenders may require you to pay the loan in five years or less. Down payments may range from 20% to 50%. Interest rates could be higher, even with an excellent credit score.

If your financial situation is right, land financing offers a fantastic opportunity for you to own a slice of heaven right here on Earth.

Types of Land Financing

Look at three major types of land financing based on the source of funding.

Bank Loans

Banks classify land loans based on the development level. Raw land loans are for undeveloped land without any roads, utilities, or structures. Unimproved land loans are for areas that have some access or outdated infrastructure on the property. You might have to upgrade water, electricity, or sewer systems. Improved land loans work for parcels with established, modern infrastructure like roads, utilities, and maybe a building.

Pros and Cons of Bank Loans

The biggest advantage of a bank loan is that it comes with the simplest terms and structure. Banks typically have a straightforward process for obtaining a loan.

Government programs can help. The USDA has lower-interest loan programs if you’re planning on building a home on the land. The SBA has loan programs with low down payments if you plan on using the land for business purposes.

There are two main disadvantages of bank loans for buying land as real estate. First, interest rates are typically higher than those of home loans. Second, the shorter repayment period (due to the higher risk) means monthly payments will be higher.

Seller Financing

Another option for land financing comes through seller financing. This is when the property owner acts as the bank and lends money to the buyer directly. Seller financing represents a great option if you are having difficulty getting a bank loan. A seller might want to have a steady income during the time the buyer makes monthly payments.

Rather than negotiate with a bank, both the buyer and seller hammer out the terms, including the price, down payment, interest, and payment schedule. Either a mortgage or land contract is signed, and that governs the transaction. The seller typically holds the title until the terms of the contract are fulfilled.

Seller financing comes with one major advantage. The buyer may qualify more easily versus a bank loan. Terms are more negotiable compared to those of a bank loan. However, you might have to pay higher interest rates or buy the land in less time, making your monthly payment higher.

Non-Traditional Financing

Consider the non-traditional financing route if neither a bank loan nor seller financing appeals to you.

Peer-to-Peer Lending

Think about peer-to-peer lending that bypasses traditional banks and seller financing. This type of lending connects borrowers and investors directly through online platforms. Funding is often quicker with simple documentation and flexible requirements. Interest rates are typically lower. Investors usually want to see a return on the investment, so this type of land financing could work if you plan to improve the property or using it for business purposes.

Crowdfunding

Another choice for buying land as real estate is through crowdfunding a purchase online. People with small amounts of money, even as low as $100, collectively pool their money to make a purchase.

Investors typically earn passive income or profits based on how the land is used. The owners might decide to make a small improvement and then flip the property for a higher price. Or, if the land will be used for business purposes, investors might get a percentage of the profits every quarter as a return on their investment. The crowdfunding platform usually manages the investment.

Start With an Accredited Land Consultant

Fortunately, it’s easy to explore your options for land financing through an Accredited Land Consultant (ALC). This real estate professional can help you determine the best route when trying to purchase land. An ALC specializes in parcels of land versus developed real estate and has the knowledge to advise buyers and sellers on the financing process.