Ready to buy land for a homestead? It is one of those milestones that feels both exhilarating and terrifying. You can already picture the orchard rows, the chicken coop at sunrise, maybe even the little cabin you’ll build with your own hands. But before you fall in love with a piece of property, it’s important to understand that buying land for a homestead is nothing like buying a house. From financing to zoning, there are unique challenges that can surprise even seasoned homeowners.
If you dream of finding your own patch of ground, this guide will walk you through how land loans work, what lenders look for, and what to check before you sign anything.
Understanding Land Loans to Buy Land for a Homestead
When you purchase land instead of an existing home, most traditional mortgage options are off the table. As Adam Hamilton, CEO of REI Hub, explains:
“If you are looking to purchase land specifically, you’re not going to be able to get a traditional mortgage. Instead, you’ll be looking into something like a land loan.”
A land loan, sometimes called a lot loan, is designed for people who plan to build or develop later. These loans often have higher interest rates and shorter repayment terms because there’s no existing structure serving as collateral.
Hamilton says there are three main categories of land loans to understand before applying:
- Raw Land Loans: For land with zero development—no utilities, roads, or infrastructure. These are considered the riskiest for lenders, so they often require higher down payments and carry steeper interest rates. The upside? Raw land is usually the least expensive to buy outright.
- Unimproved Land Loans: For properties that may have basic access (like a road) but lack full utilities. Slightly easier to finance than raw land.
- Improved Land Loans: For parcels already equipped with utilities and infrastructure. These tend to have the best lending terms because they’re less risky, but also come with a higher purchase price.
Financing Options to Buy Land for a Homestead
Not all land buyers rely on traditional banks. Depending on your goals, location, and credit, you may have a range of lending paths. Dr. J. Ryan Smolarz, MD, MBA, founder of The Medicine and Money Show, notes that buyers can explore several routes:
“They can obtain conventional land loans from local banks, FHA and VA loans if they plan to build a home, USDA loans for properties located in rural areas, SBA loans for business properties, and sometimes seller financing.”
If you already own a home, you may also use a home equity loan or home equity line of credit (HELOC) to purchase your land. These loans often offer better rates since they’re secured by your existing home.
For rural properties, USDA loans are particularly valuable—they can provide low interest rates and flexible terms for agricultural or residential development. If your dream property lies far from town, it’s worth checking your eligibility.
Down Payments, Loan-to-Value Ratios, and What Lenders Look For
Unlike a standard home mortgage, land loans come with stricter requirements. Lenders want to ensure you have skin in the game and the financial means to follow through with your plans.
Dr. Smolarz explains:
“For raw land, lenders can cap the LTV at 65%, thus requiring a bigger down payment. Developed land with utilities or roads can see higher LTVs up to 75%. Homes have higher LTVs at around 80–85% or more.”
That means you could need anywhere from 25% to 35% down—sometimes more if the property is undeveloped or remote. Alongside that, lenders will look at:
- Credit history and score
- Debt-to-income ratio
- Your intended use of the land (personal, agricultural, or investment)
- Income stability or business plan, if applicable
The more clearly you can explain how you’ll use the land, the easier it will be to convince a lender you’re a good risk.
Hidden Costs and Due Diligence Before You Buy
Even if you find a lender and the perfect piece of property, your work isn’t done yet. Buying land for a homestead means doing the homework that ensures your investment won’t turn into a money pit.
Dr. Smolarz advises:
“Buyers should be prepared to research zoning rules, water and septic access, property taxes, and flood zones. Have the land surveyed and look out for any deed restrictions or insurance needs.”
Here’s a quick checklist to help you cover your bases:
- Zoning and land use: Make sure you can actually build a home, keep livestock, or run a small business on the property.
- Water access: Determine if there’s an existing well, rural water connection, or potential for rain catchment.
- Septic and drainage: Check if the soil can handle a septic system and where it would go.
- Utilities and easements: Confirm whether electric, gas, or internet lines are nearby—and that you have legal access to them.
- Taxes and insurance: Rural properties can have wildly different tax rates and coverage needs.
- Boundary survey: Verify property lines before closing to avoid disputes with neighbors.
→ Ready to start homesteading? Check out this beginner’s guide.
Should You Buy Raw Land and Build Later?
It’s tempting to buy the cheapest land you can find and plan to build someday—but that route often takes more time and money than new homesteaders expect.
As Hamilton points out, raw land may have the lowest purchase price but the highest financing costs and slowest path to livability.
If the property doesn’t have utilities or legal access, you’ll need to factor in the cost of running power lines, drilling wells, or building access roads. In some rural areas, simply getting electricity to the property can cost tens of thousands of dollars.
If this is your first homestead, consider unimproved or partially developed land instead. You’ll save months of groundwork and can start farming, gardening, or raising animals much sooner.
Tips for Making the Process Easier
Buying land takes patience and persistence, but a few strategies can make the process smoother:
- Work with a local lender or credit union. They understand rural property values better than large national banks.
- Get pre-qualified. It helps you know your budget before you start shopping.
- Hire a real estate agent who specializes in land. These agents know how to navigate zoning and survey issues.
- Budget for infrastructure. Even simple additions like driveways and fencing can add up.
- Visit the property more than once. See it after a rainstorm, in different light, and if possible, after dark to check accessibility.
The Bottom Line: Plan for Patience and Paperwork
Owning land for a homestead is the first step toward the life many of us crave—quiet mornings, room to grow food, and the independence of a self-sustaining lifestyle. But buying land comes with more complexity than buying a home. Between financing hurdles, zoning research, and infrastructure costs, it’s a process that rewards patience and planning.
The good news? Once you’ve done the work, that land is yours—and the foundation for a lifetime of growth.
FAQ – Buy Land for a Homestead
What type of loan do I need to buy land for a homestead?
You’ll typically need a land loan, sometimes called a lot loan. These loans are different from standard mortgages because there’s no existing structure on the property. Land loans are available through local banks, credit unions, and some national lenders. Depending on your plans, you might also qualify for specialized options like USDA rural development loans (for agricultural or residential use), FHA or VA construction loans (if you plan to build right away), or seller financing if the landowner is open to it.
How much down payment is required for a land loan?
Expect to put down 20% to 35% of the purchase price for most land loans. The exact amount depends on how developed the land is and your credit history. Raw land (without utilities or road access) is riskier for lenders, so it usually requires the largest down payment and a higher interest rate. Improved land—with electricity, water, and access roads—may allow a smaller down payment since it’s less risky for the lender.
What’s the difference between raw, unimproved, and improved land?
These terms describe how much infrastructure already exists on a property:
Raw land has no development at all—no utilities, roads, or nearby services. It’s the cheapest to buy but hardest to finance.
Unimproved land might have basic road access but still lacks utilities like water or electricity.
Improved land has existing infrastructure such as utilities and driveways. It costs more upfront but is easier to finance and build on.
What should I check before buying rural property?
Before closing on rural land, confirm that it fits your goals and local regulations. Check:
Zoning and land use rules (can you build or keep animals?)
Water and septic access or soil suitability for a septic system
Easements and access rights for driveways or utilities
Flood zones or drainage issues
Property boundaries and surveys to avoid disputes
Annual taxes and insurance costs
Doing this research before you buy can prevent costly surprises later.
