What interest rates do land loans charge?
Land loans typically charge prime plus 1.5 to 3 percent at banks and credit unions, 10 to 13 percent from private lenders, and 6 to 10 percent on seller-carried notes, usually interest-only or amortized over ten to twenty years with a balloon at three to five years. Rates run above construction loans because land produces no income and is slow to sell.
By source
| Source | Typical rate | Points | Term |
|---|---|---|---|
| Bank or credit union | Prime plus 1.5 to 3 percent, variable | 0.5 to 1.5 | 3 to 5 years, sometimes a 10 to 20 year amortization with a balloon |
| Private or hard money | 10 to 13 percent, fixed | 2 to 4 | 12 to 24 months |
| Seller carry | 6 to 10 percent | 0 | 3 to 10 years, often a balloon |
| Farm credit | Competitive with banks | 0.5 to 1 | Up to 20 years |
Ranges vary by lender and land type.
Why land costs more
A lender prices the time it would take to sell the collateral. Rental property sells to investors on income; land sells to the buyer who has a plan, and there are fewer of them. Add the lack of income to cover payments, and the rate reflects both.
What moves the rate
Entitlements. Approved zoning and a site plan cut the rate meaningfully because the exit is visible.
Leverage. 50 percent loan-to-value prices lower than 65.
Location. Land in a growth corridor with builder demand prices lower than rural acreage.
Plan and timeline. A construction start within twelve months, with a lender engaged, reads as a bridge to construction rather than a speculative hold.
Relationship. Banks price land loans for depositors and repeat borrowers.
Interest-only vs amortizing
Private land loans are interest-only. Bank land loans are often amortized over ten to twenty years with a three to five year balloon, which lowers the monthly payment and builds a little equity. Seller notes are negotiable; interest-only with a balloon is common.
A worked example
$400,000 loan on entitled land, twelve-month hold before construction:
- Bank at prime plus 2, roughly 10 percent: about $40,000 interest plus $4,000 in points.
- Private at 12 percent with three points: $48,000 interest plus $12,000 in points.
- Seller carry at 8 percent: $32,000 interest, no points.
The seller note is cheapest when available; the private loan buys speed and lighter underwriting.
Getting a lower rate
- Finish entitlements before you borrow, or borrow privately for the entitlement period and refinance with a bank after.
- Bring the construction lender in early so the land loan is short.
- Ask the seller to carry.
- Put more down.
How CommFi handles it
Our lending desk prices bank, private, and seller-carry structures side by side and funds direct when it fits. When a land lender active in your market is the better source, the desk searches a database of 7,000+ lenders and the ones that fit compete on rate. Zero upfront fees.
Related reading
Related questions
- Why are land loan rates higher than mortgage rates?
- Land has no income to cover payments and takes longer to sell if the lender forecloses, so lenders price the added risk.
- Are land loans fixed or variable?
- Bank land loans are usually variable, tied to prime. Private and seller-carried notes are usually fixed.
- Do land loans have points?
- Banks charge 0.5 to 1.5, private lenders 2 to 4, and seller notes usually none.
- Does entitlement lower the rate?
- Yes. Approved zoning and a site plan often move the rate down a point or more and lower the down payment.
- What is the cheapest way to finance land?
- Seller financing when the seller will carry, then a bank loan on entitled land with a construction start scheduled.
Property developer and licensed appraiser. 22+ years in real estate: TIC conversions, multi-unit redevelopments, mixed-use, fix and flips, commercial DSCR.