How to Get a Land Equity Loan – What It Is, How It Works, and How to Apply (2025)

Quick overview — land equity loans in plain English

A land equity loan (sometimes called a land-secured loan, land equity line, or land equity mortgage) lets homeowners borrow against the equity they built in a parcel of land. Equity is simply the market value of the land minus any loans secured against it. Lenders use that equity as collateral to reduce risk — and that collateral is what lets them offer higher loan amounts and better rates than many unsecured options.

In 2025, lenders are more comfortable with land-secured products when the title is clear, the land is marketable, and borrower documentation is solid. This guide walks through the loan types, when a land equity loan makes sense, how lenders underwrite land as collateral, and a step-by-step application checklist that will shave days off the underwriting timeline.

Types of land equity loans and why people use them

Not all land loans are identical. Here are common variations:

1. Land equity loan (closed-end)

Similar to a traditional second mortgage: you receive a lump sum based on available equity and repay over a fixed term. Best when you know the exact amount you need (e.g., buying another parcel, paying down higher-rate debt, or financing a construction start).

2. Land equity line of credit (open-end)

Works like a home equity line of credit (HELOC) but uses land as collateral. You get a credit limit and draw as needed — useful for ongoing projects or staged land development where needs are unpredictable.

3. Construction or development loans secured by land

Lenders provide funds for building or improving land (infrastructure, grading, residential development). These loans often have milestone draws and stricter underwriting, including business plans and cost schedules for developers.

4. Purchase loans secured by another parcel

In some cases you can use an existing land parcel as collateral to buy a separate property. Be careful — this doubles the risk on the secured parcel.

Common uses

• Buying additional plots or raw land
• Financing home-building or infrastructure on the lot
• Consolidating high-interest debt into a lower-rate secured loan
• Funding business projects, such as agricultural improvements or small development

How lenders evaluate land as collateral (what matters)

Land is not a uniform asset. Lenders consider several factors when deciding whether to lend and how much:

• Marketability: Is the parcel easy to sell? Urban or near-urban lots are more marketable than remote acreage.
• Zoning & permitted use: Residential, agricultural, or commercial zoning affects value and lender willingness.
• Access & utilities: Does the parcel have legal access, roads, or utilities? Utilities increase market value.
• Environmental or title issues: Wetlands, liens, easements, or unresolved boundary disputes reduce lender appetite.
• Appraised value & LTV: Lenders require professional appraisals; typical loan-to-value (LTV) ratios vary based on risk but often range from 50–70% for raw land and 70–85% for improved land or parcels with permitted development.

Tip: before applying, run a quick title search and fix obvious title issues. Clearing clouds on the title (e.g., unrecorded liens) speeds underwriting.

Qualification: what lenders will check

Standard underwriting checks include:

• Credit score: Higher scores yield better rates and higher unsecured limits. For land-secured loans, lenders may accept lower scores but charge higher interest.
• Income & debt-to-income (DTI): Pay stubs, tax returns, and documented income are essential to prove repayment ability.
• Equity & existing liens: Mortgage statements and the current deed show outstanding debt and equity available.
• Appraisal or broker price opinion (BPO): Lenders usually require a valuation before approving the loan amount.
• Purpose & plan: For development loans, a construction plan, budget, and timeline help lenders assess feasibility and release draws.

Common minimums (varies by lender): credit scores 620+ for many secured products, though specialist land lenders and credit unions may accept lower scores if the land and borrower profile are strong.

Step-by-step application checklist (what to prepare)

Being organized reduces underwriting time. Collect these documents before you apply:

1. Photo ID: Driver’s license or passport.
2. Proof of ownership / deed: Current recorded deed or title document showing your ownership of the land.
3. Mortgage statements or lien payoffs: If the land has an existing mortgage or liens, provide statements.
4. Recent tax assessments: County property tax statements and assessed value.
5. Appraisal or comparable sales: If you already have an appraisal, include it. If not, the lender will order one.
6. Proof of income: 2–3 months of pay stubs, tax returns (last 2 years), and bank statements.
7. Project plans (if applicable): For construction or development loans, include budgets, permits, and contractor quotes.
8. Survey or legal description: Helpful to resolve boundary questions quickly.

Pro tip: prepare a short cover letter that explains the loan purpose and any mitigating facts (e.g., recent appraisal that supports higher value, clear title history). Small touches like this reduce back-and-forth requests.

Costs, expected rates, and fees (2025 snapshot)

Exact rates vary by lender, location, and borrower profile. Typical ranges in 2025:

• Interest rates: Secured land loans — roughly 5.5%–12% for borrowers with strong profiles; higher for riskier parcels or lower-credit applicants.
• Origination fees: 0.5%–2% of the loan amount is common for straightforward secured loans; development loans often have higher fees.
• Appraisal fees: $400–$2,000 depending on parcel complexity and geography.
• Title & settlement fees: Vary by state — expect $300–$1,200.
• Prepayment penalties: Some lenders include them for fixed-rate closed-end loans; lines of credit usually allow flexible paydown.

Always request a Loan Estimate (or fee schedule) in writing and compare APR (which folds fees into the rate) across lenders to find the true cost.

Where to apply: lender types and how to choose

Different lenders specialize in land products. Match your needs to the right lender:

Local banks & credit unions

Pros: relationships, local market knowledge, potentially lower fees for long-standing customers. Cons: stricter underwriting, limited portfolio appetite for raw or high-risk land.

Regional/specialty land lenders

These lenders focus on land and development loans and are often more flexible on zoning and collateral specifics, though rates and fees vary.

Online lenders & marketplaces

Some online lenders and platforms allow quick prequalification and might use alternative underwriting criteria; they can be convenient for smaller parcels or quick turnarounds.

Private lenders and hard-money lenders

If you need speed or have a nontraditional property, private lenders can fund quickly but at higher cost — ideal for short-term bridging until a longer-term loan is arranged.

Can you get a land equity loan with bad credit?

Short answer: sometimes. Lenders want assurance they'll get repaid. If your credit profile is weak, consider these paths:

• Lower LTV: Offer more equity upfront. If you borrow less relative to the land’s value, lenders feel safer.
• Collateral stacking: Use additional assets (savings, vehicles) to secure the loan or consider a secured personal loan.
• Co-signer: A co-signer with strong credit can improve approval odds and price.
• Credit unions & community lenders: Often more flexible and willing to consider relationships and documented improvements.
• Private bridging: Short-term private loans can bridge a credit gap while you improve scores and refinance into a cheaper product.

Expect higher APRs and stricter covenants. If possible, invest time in improving credit (fix errors, reduce balances) before applying — the saved interest often outweighs the short delay.

Timeline: from application to closing

Typical milestones and timing:

• Prequalification: Instant to 2 days (soft credit pull).
• Application & documentation: 3–10 days depending on how ready you are.
• Appraisal & title work: 7–21 days depending on appraiser availability and title complexity.
• Underwriting & final approval: 3–10 business days after appraisal and docs are in.
• Closing & funding: 1–7 days after clear-to-close depending on settlement scheduling.

In total, expect 2–6 weeks for a straightforward transaction. Complex development loans can take longer.

Alternatives to a land equity loan (when it may not be the best choice)

Evaluate these before locking your land as collateral:

• Personal loans: Faster and unsecured, but usually smaller and at higher APR for large amounts.
• Home equity loan / HELOC on a house: If you own a house with equity, HELOCs may offer lower rates and higher limits — compare carefully. See our guide on how much house you can afford to understand options when a house is available as collateral.
• Seller financing or owner carry: If buying land, sometimes the seller will carry financing at competitive terms.
• Partner or investor capital: For development, equity partners may provide funding without taking a mortgage against your land (but share upside).

Real-world examples & short case studies

Case study: Small-lot purchase using land equity

Sara owned a 2-acre lot near a growing suburb. She had no mortgage on the lot and needed $45,000 to buy an adjacent plot. The bank appraised her lot at $120,000 and offered a 60% LTV land equity loan — $72,000 available. Sara borrowed $45,000 at a competitive secured rate, closed in three weeks, and paid off the loan within 3 years after subdividing and selling half the newly acquired land.

Case study: Developer bridge loan

A small developer wanted to start infrastructure work but needed quick capital. A private bridge lender provided short-term financing secured by several parcels; higher cost, but speed allowed the developer to finish grading and qualify for a larger construction loan at better rates.

Decision checklist — is a land equity loan right for you?

Before you apply, run through this quick checklist:

• Is your land title clean and free of disputes?
• Do you have clear documentation of income and ability to repay?
• Have you compared APR and fees to alternatives (HELOC, personal loan)?
• Would losing the land in a default scenario be acceptable or catastrophic?
• Have you spoken to at least two lenders to compare LTVs and terms?

If the answers are favorable, a land equity loan can be a low-cost way to unlock capital compared with many unsecured options.

Practical steps to apply — what to do today

1. Run a title check: Order a title report and resolve minor issues before you apply.
2. Pull your credit report: Fix any errors and gather evidence of recent income stability.
3. Get a market check: Collect recent comparable sales and county tax assessments to estimate value ahead of an appraisal.
4. Prequalify: Use lenders offering soft-pull prequalification to get rate and limit ranges without harming your credit.
5. Apply with clear purpose: Provide a short project summary and budget if funds are for development or construction.
6. Negotiate terms: Ask about prepayment penalties, balloon options, and whether interest-only draws are available for development loans.

Related guides & tools on CalcPortalPro

Use these internal resources to plan the loan properly:

• Loan calculator — estimate payments and affordability.
• Greater personal loan guide — alternatives for larger unsecured borrowing.
• How to start an emergency fund — best practices to avoid unnecessary borrowing.

Final verdict — when a land equity loan makes sense

A land equity loan is a valuable tool when you need relatively large funds at rates usually better than unsecured credit. It’s especially useful if:

• You own marketable land with clear title and reasonable access.
• You need capital for a defined purpose (buying adjacent land, specific development work, or debt consolidation).
• You have stable income and can comfortably service the loan.

If your land has unclear title, marginal marketability, or you cannot tolerate the risk of losing the parcel, consider alternatives. When in doubt, speak with multiple lenders and a qualified real estate attorney.