Buying land loans

Here’s what you need to know if you are looking for a loan to purchase a vacant block of land without plans to build right away.

What is a land loan

A land loan (or a vacant land loan) is a home loan where borrowers will seek financing from a lender to purchase a block of land. The intent with seeking a land loan is to eventually build a house on the block of land one day without it being determined in a specified amount of time. Therefore unlike most home loans which are used to fund the purchase of a land + property package, a land loan is purely to gain ownership in a block of land. 

Factors to consider when getting your land loan

  • Land size

    When looking to take out a home loan for land purchases, the size of the land is important as it will determine the deposit needed to get the funds. 

    These limits can vary depending on the lender, you could borrow up to 95% of the property’s value if the land is up to 11 hectares. Whereas if you are looking to purchase a block of land larger than this you will usually need at least a 20% deposit. 

  • Location

    Where the land you are looking to purchase is located is an important factor that will go into securing your funds as the access and zoning regulations will become a part of the assessment process. 

    For example a block of land in a capital city or regional centre that is serviced by sealed roads may be viewed favourably over land in remote locations with no proper road access for standard vehicles. The zoning regulations of your block of land are important as you need to ensure that the land is zoned for residential use.

  • Registered or unregistered?

    When buying a block of land, it is important to understand if the land you are interested in is registered or not, as lender’s will not approve funds on unregistered land. Registered land means it is ready for you to build your home once you own the land as all services are connected and road infrastructure is complete. 

  • Intention to build

    While you don't need immediate plans to build on your land to receive a land loan, having the intent to build can assist in securing the funds. This is due to lenders viewing no intention to build at all a higher risk than a borrower who would be planning to build within a few years of owning the land. 

  • Land purpose

    It is important to note that to get a vacant land loan as a home loan, the land and eventual property will need to be used for personal or investment purposes and not as a farm. In some cases you may be able to use your land as a hobby farm, that generates little income from the farm production. 

Difference between vacant land loans and construction loans

A construction loan, or builder loan, is a type of home loan where the funds are drawn down as your property is being built in progress payments. The main difference between a construction loan and a vacant land loan is the timeframe to build the property. During the time of taking out a construction loan, the lender will usually set a maximum time limit for you to completely draw down on your loan for when construction is completed. Whereas you are not obligated to build on your vacant land once taking out a vacant land loan.

Another difference between these two home loan types is a construction loan will involve determining the full amount of funds you will receive to purchase the land and build your home, whereas a land loan will only involve the funds needed to purchase the land.  

Land loan interest rates

The interest rates for vacant land loans are generally higher than the rates on typical home loans. This is due to land loans having a higher risk associated with them to lenders. As land prices tend to fluctuate more frequently than existing homes, and vacant land will generally take longer to sell than an existing home, lenders are more likely to take a more conservative approach when providing a loan to only buy land. 

Get a free home loan quote today for an estimate of what you could borrow including the costs and fees involved or speak to your local Mortgage Choice expert today to understand what interest rates would be available to you.


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