Land Loans & Land Acquisition Financing
Land financing may help investors, developers, builders, and other eligible borrowers acquire property for future development, construction, investment, or other approved purposes. Financing structures vary based on the land, location, zoning, development plans, borrower experience, equity, and proposed exit strategy.
Loan Definition
What Is a Land Loan?
Land loans provide financing for the acquisition or refinancing of eligible parcels of land. Potential uses may include:
- Future residential development
- Multifamily development
- Commercial development
- Mixed-use development
- Construction projects
- Investment purposes
- Assemblage opportunities
- Other eligible real-estate development strategies
Land financing is generally evaluated differently from a traditional residential mortgage. Lenders may apply more conservative underwriting standards given the nature of undeveloped land.
Financing Types
Types of Land Financing
Availability depends on lender guidelines.
Raw Land
Raw Land Financing
Financing for undeveloped parcels without utilities, roads, or site improvements.
Unimproved
Unimproved Land Financing
Financing for land with limited infrastructure or development completed.
Improved
Improved Land Financing
Financing for land with access to roads, utilities, water, sewer, or other infrastructure.
Residential Dev
Residential Development Land
Land intended for future single-family, townhome, or residential subdivision development.
Multifamily Dev
Multifamily Development Land
Land intended for apartment buildings, multifamily, or mixed-use development.
Commercial Dev
Commercial Development Land
Land intended for retail, office, industrial, hospitality, or other commercial development.
Construction
Land Acquisition for Construction
Acquiring land with the intention of beginning ground-up construction.
Refinance
Land Refinance
Refinancing an existing land loan to replace maturing debt or prepare for development.
Cash-Out
Land Equity / Cash-Out Financing
Certain lenders may permit eligible borrowers to access equity in land they already own where available.
Raw Land
Raw Land
Raw land generally refers to property that has not yet been substantially improved or developed. The property may lack:
- Utilities
- Roads
- Sewer
- Water
- Approved plans
- Entitlements
- Site improvements
Raw-land financing may involve more conservative underwriting because the property may require substantial additional development before generating income or being ready for construction.
Infrastructure Status
Improved vs. Unimproved Land
Unimproved Land
Unimproved land may have limited infrastructure or development completed.
Improved Land May Have Access To
- Roads
- Utilities
- Water
- Sewer
- Electricity
- Approved access
- Other infrastructure
The amount of completed infrastructure may affect financing options.
Zoning
Why Zoning Matters
Lenders may review:
- Current zoning
- Permitted uses
- Density
- Building height
- Setbacks
- Lot coverage
- Parking requirements
- Residential or commercial use
- Other applicable zoning restrictions
"Financing does not guarantee that a proposed project will receive zoning or municipal approval."
Entitlements
Entitlements & Approvals
Development approvals can significantly affect a project's viability. Potential items may include:
- Zoning approvals
- Variances
- Site-plan approval
- Subdivision approval
- Building plans
- Environmental approvals
- Utility approvals
- Municipal approvals
- Other applicable entitlements
Entitled or development-ready land may be evaluated differently from completely raw land.
Development Plans
Land with Approved Plans
Land with approved development plans may potentially provide lenders with a clearer understanding of the proposed project. Potential documentation may include:
- Architectural plans
- Engineering plans
- Site plans
- Survey
- Zoning analysis
- Development approvals
- Construction budget
- Project timeline
Approved plans do not guarantee financing.
Construction
Land Acquisition for Ground-Up Construction
Investors and developers may acquire land with the intention of beginning construction. Potential projects may include:
- Single-family development
- Townhome development
- Multifamily buildings
- Apartment buildings
- Mixed-use projects
- Commercial buildings
- Other eligible developments
In certain transactions, land acquisition financing may later transition into or be replaced by construction financing.
Construction financing is not guaranteed.
Leverage & Equity
Borrower Equity, Land Value & LTV
Equity
Borrower Equity
Land financing commonly requires borrower or sponsor equity. The required contribution may depend on:
- Land value
- Purchase price
- Location
- Development status
- Zoning
- Entitlements
- Borrower experience
- Proposed project
- Exit strategy
- Lender guidelines
No universal down-payment percentage is published here.
Land Value
Land Value
A lender may evaluate both:
- Purchase price
- Current appraised or market value
Depending on the transaction, additional consideration may be given to the property's development potential.
Future development value is not guaranteed.
LTV
Loan-to-Value
Loan-to-Value, or LTV, compares the financing amount with the value recognized by the lender.
Land lenders may use more conservative leverage than lenders financing completed income-producing properties.
No universal maximum LTV is published here.
Borrower Profile
Experience, First-Time Developers & Liquidity
Experience
Development Experience
Lenders may consider the borrower or sponsor's experience with:
- Land acquisition
- Real-estate development
- Construction
- Multifamily development
- Commercial development
- Prior completed projects
- Property management
- Investment real estate
Experienced developers may have access to different financing structures, but experience requirements vary by lender.
First-Time
First-Time Developers
Some lenders may consider borrowers undertaking their first development project. The lender may place additional emphasis on:
- Equity
- Credit
- Liquidity
- Contractor experience
- Development team
- Project feasibility
- Guarantor strength
- Exit strategy
First-time developers are not guaranteed financing.
Liquidity
Liquidity & Reserves
Lenders may evaluate available liquidity for:
- Required equity
- Closing costs
- Carrying costs
- Taxes
- Insurance
- Development expenses
- Pre-construction expenses
- Unexpected costs
- Reserves
No universal liquidity requirements are published here.
Due Diligence
Environmental, Survey, Access & Utilities
Environmental
Environmental Review
Depending on the property and proposed use, a lender may require environmental due diligence. Potential items may include:
- Phase I Environmental Site Assessment
- Additional environmental testing if necessary
- Flood-zone review
- Wetlands review
- Other environmental considerations
Environmental requirements vary by property, lender, location, and proposed use.
Survey & Title
Survey & Title
Land transactions may require review of:
- Survey
- Legal description
- Property boundaries
- Easements
- Access
- Encroachments
- Title
- Existing liens
- Other recorded restrictions
Acceptable title and legal access may be important underwriting considerations.
Access
Access to the Property
Lenders may evaluate whether the parcel has adequate legal and physical access. Potential considerations include:
- Public-road access
- Private-road access
- Easements
- Ingress and egress
- Utility access
No legal opinions regarding access rights are provided.
Utilities
Utilities & Infrastructure
Lenders may evaluate access to:
- Water
- Sewer
- Electricity
- Gas
- Roads
- Drainage
- Telecommunications
- Other infrastructure
Lack of infrastructure can affect development costs and financing.
Development Budget
Development Budget
For land intended for development, lenders may request information regarding:
Feasibility
Project Feasibility
Lenders may evaluate whether the proposed project appears financially and operationally feasible. Potential considerations may include:
- Development costs
- Property value
- Market conditions
- Expected construction timeline
- Proposed use
- Project demand
- Sponsor experience
- Financing structure
- Exit strategy
Profitability is not guaranteed.
Existing Land Ownership
Land as Collateral, Refinance & Cash-Out
Collateral
Land as Collateral
Borrowers who already own land may potentially be able to use existing land equity as part of a financing strategy. Depending on lender guidelines, land equity may potentially be considered in connection with:
- Construction financing
- Development financing
- Bridge financing
- Land refinance
- Other eligible transactions
Existing land equity does not guarantee required borrower equity will be satisfied.
Free & Clear
Free & Clear Land
Land owned free and clear may provide equity that can potentially support a future financing request. The lender will still evaluate:
- Current value
- Title
- Zoning
- Development plans
- Borrower qualifications
- Proposed project
- Exit strategy
Refinance
Land Refinance
Certain lenders may refinance an existing land loan. Potential reasons may include:
- Replacing maturing debt
- Preparing for development
- Restructuring financing
- Transitioning between project phases
- Other eligible business purposes
Refinancing is not promised.
Cash-Out
Cash-Out from Land Equity
Certain lenders may permit eligible borrowers to access some equity in land they already own. Potential uses may include:
- Development expenses
- Pre-construction expenses
- Business-purpose capital
- Other eligible real-estate purposes
Availability depends heavily on property value, leverage, lender requirements, and transaction structure. Guaranteed cash-out is not advertised.
Loan Terms
Land Loan Terms
Land financing may be structured as:
Terms vary considerably by lender.
No universal rates, terms, or fees are published here.
Exit Strategy
How Will the Land Loan Be Repaid?
Potential exit strategies may include:
"A clear and realistic exit strategy is especially important when using short-term land financing."
Entitlement Strategy
Entitlement Strategy
Some investors acquire land before all development approvals have been obtained. Their strategy may involve:
Strategy A
Acquire → Entitle → Develop
Strategy B
Acquire → Entitle → Sell
Entitlement timelines and outcomes can be uncertain.
"Zoning changes, variances, subdivisions, and other approvals are not guaranteed."
Development Uses
Multifamily, Commercial & Assemblage
Multifamily
Land for Multifamily Development
Land financing may potentially support future:
- Apartment buildings
- Multifamily developments
- Mixed-use developments
- Townhome developments
- Other eligible residential development
Lenders may evaluate unit count, density, zoning, development budget, sponsor experience, plans, entitlements, market feasibility, and exit strategy.
Commercial
Commercial Development Land
Land may also be acquired for eligible:
- Retail
- Office
- Industrial
- Hospitality
- Mixed-use
- Other commercial development
Financing availability depends on the lender and project.
Assemblage
Land Assemblage
Land assemblage involves acquiring multiple neighboring parcels that may be combined for a larger development opportunity. Financing may be more complex when:
- Multiple sellers are involved
- Parcels close at different times
- Zoning changes are required
- Existing structures must be removed
- Development plans are not yet finalized
Land assemblage financing should be structured around the complete acquisition and development strategy.
Getting Started
Document Checklist & Questions to Ask
Documents a Lender May Request
Questions to Ask
Prosper Path Group
The Big Picture
"Land financing should be structured around both the property as it exists today and the borrower's future development strategy."
Prosper Path Group can help borrowers explore:
Ready to Begin?
Let's Review Your Land or Development Opportunity
Tell us about the land, purchase price, current value, zoning, proposed development, approvals, financing request, available equity, experience, and exit strategy. Prosper Path Group can help you explore financing options based on the complete transaction.
Land, development, bridge, hard-money, private-lending, construction, and other real-estate financing programs, rates, terms, loan amounts, leverage, borrower equity requirements, property eligibility, zoning requirements, entitlement requirements, credit standards, experience requirements, and underwriting guidelines vary by lender and transaction. Development approvals, zoning changes, entitlements, construction financing, future property values, refinancing, sale proceeds, and investment returns are not guaranteed. Not all borrowers, entities, properties, projects, or proposed uses will qualify. This information is provided for general educational purposes and is not a commitment to lend.
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