Buying a lot before you build means you can’t use a standard home mortgage. Land-only loans work on different rules for down payment, term, and rate, and treating them like a regular purchase mortgage is the fastest way to get a pre-approval denied. If you’re eyeing a parcel near Wyndham or a wooded acreage off one of Henrico County’s growth corridors, understanding how land financing actually works will save you weeks of frustration.
Written by Duane Buziak, NMLS #1110647 | Coast2Coast Mortgage LLC NMLS #376205
Why Vacant Land Doesn’t Qualify for a Standard Home Mortgage
A traditional 30-year mortgage is underwritten against a habitable structure. The appraiser values a house, the house secures the loan, and if a borrower defaults, the lender has a marketable asset to recover against. Land with no home on it doesn’t offer that same collateral profile. Vacant parcels sell more slowly, values swing more with local zoning and market sentiment, and there’s no rental or resale comparable the way there is with a finished house. That extra risk is why most conventional and government-backed programs, including standard Fannie Mae conventional financing, simply won’t finance land purchases on their own.
It helps to separate land into three categories, because each one drives different financing terms. Raw land has no utilities, no road access, and often no perc test or survey on file. Unimproved land has some infrastructure, maybe road frontage or partial utility access, but isn’t fully ready to build. Improved, or buildable, lots have utilities at the property line, an approved perc test where required, recorded access, and a zoning classification that supports residential construction. A lender looking at a buildable lot near an established neighborhood is taking on far less uncertainty than one looking at forty acres with no road cut in.
Because of that risk profile, land loans rarely look like the mortgage you’d get on a house. Instead of a 30-year fully amortizing note, expect terms in the 2 to 5 year range, frequently structured with a balloon payment at the end. The borrower makes payments based on a longer amortization schedule, sometimes 15 or 20 years, but the full remaining balance comes due at the end of the short term. That structure isn’t a trap, it reflects how land lenders manage their own risk, but it does mean you need a plan for refinancing or building before that balloon date arrives.
Raw Land vs. Unimproved vs. Improved Lot: Comparing Financing Terms
The classification of the land you’re buying is the single biggest factor in what a lender will offer. Here’s how the three categories generally compare.
| Land Type | Typical Down Payment | Typical Term | Common Use Case |
|---|---|---|---|
| Raw Land | 35-50% | 2-3 years, balloon | Recreational, long-term hold, no near-term build plan |
| Unimproved Land | 25-35% | 3-5 years, balloon | Future homesite with partial utilities or access |
| Improved/Buildable Lot | 20-30% | 3-5 years, or roll into construction-to-permanent | Near-term build with permits or plans in progress |
Improved lots, meaning those with utilities stubbed to the property, a completed perc test, and recorded road access, consistently earn better terms because the lender’s exit strategy is clearer. If a borrower defaults, a buildable lot in a platted subdivision is far easier to resell than raw acreage with no infrastructure. That’s a sharp contrast to conventional owner-occupied financing, where a well-qualified borrower on a primary residence can reach 90% loan-to-value, or a VA cash-out refinance can reach 100% LTV. Land simply doesn’t carry that same collateral confidence.
Rates follow the same logic. Land loan rates typically run higher than owner-occupied mortgage rates, sometimes by a meaningful margin, because the lender is pricing in both the shorter resale timeline and the added uncertainty of undeveloped collateral. Pricing varies significantly by lender, loan type, and how “shovel-ready” the parcel is, so any rate you see quoted online should be treated as a starting point for a conversation, not a locked number.
What Lenders Check: Credit, Down Payment, and Intended Use
Down payment requirements on land loans commonly range from 20% to 50%, depending heavily on land type and zoning. That’s a wide gap compared to the conventional owner-occupied ceiling of 90% LTV most Henrico buyers are used to seeing on a home purchase. Lenders treat land as a larger equity cushion is required upfront precisely because there’s no structure backing the loan.
Beyond down payment, lenders want to know what you intend to do with the parcel. A borrower planning to build a primary residence within a year or two presents a very different risk than someone buying acreage purely for recreational use or future investment with no defined timeline. Some lenders will also verify the zoning classification directly, which is one reason it pays to check a parcel’s status on Henrico County’s Planning Department pages before you go under contract, not after.
Credit and reserves matter more here than on a typical home purchase file, since land loans often carry stricter overlays. This is where working with a broker rather than a single retail shelf makes a practical difference. Land-loan guidelines vary widely from one wholesale lender to the next: one may cap raw land at 50% down while another offers 30% for the same parcel type, and one may decline recreational-use land entirely while another welcomes it. A broker who can shop your file across a range of wholesale lenders, rather than fitting you into one institution’s fixed rulebook, is often the difference between a declined file and an approved one.
Worked Example: Buying a 2-Acre Lot Near Wyndham
Suppose a buyer finds a 2-acre buildable lot near Wyndham priced at $180,000, with utilities at the road and a completed perc test on file. Given its improved status, the lender requires 30% down.
That’s $54,000 down, leaving $126,000 financed. On a land loan structured with a 5-year term and payments calculated on a 20-year amortization schedule at an illustrative rate of 8.5%, the estimated principal and interest payment comes to roughly $1,093 per month. At the end of the 5-year term, the remaining balance, still well over $100,000, comes due as a balloon payment unless the borrower refinances, sells, or rolls the loan into construction financing.
Upfront cash needed isn’t just the down payment. Unimproved and improved lots frequently require a current survey if one isn’t already on file, plus title insurance, recording fees, and sometimes a fresh perc test if the existing one has aged out. Budgeting an additional $3,000 to $6,000 for these closing items on top of the $54,000 down payment is a reasonable planning assumption for a parcel this size.
This math is illustrative, built to show how the pieces fit together, not a locked quote. Land loan pricing shifts based on lender, lot classification, term length, and the borrower’s credit profile, so the only way to know your actual numbers is to run your specific parcel and financial picture past a loan officer.
Turning a Land Loan Into a Construction-to-Permanent Mortgage
Many Henrico buyers don’t intend to hold land indefinitely. They want the lot as a first step toward building. For that path, a construction-to-permanent loan is usually the more efficient route than financing land alone and refinancing later. In a construction-to-perm structure, the lot cost is rolled into the same loan that funds the build, and once construction is complete, it converts into a standard permanent mortgage, often without a second closing.
Timing is the detail buyers underestimate. Lenders offering construction-to-permanent financing typically want to see a build timeline, and often a permit application or approved plans, before they’ll finance the land purchase as part of that structure. This is especially relevant around growth areas like Deep Run Park, where new residential development has been active and county permitting timelines can affect how quickly a build can start after closing on the lot. A buyer who closes on land with no build plan in place, then tries to add construction financing a year later, may find they’re back to standalone land-loan terms rather than the more favorable construction-to-perm structure.
This is a general financing concept, and how it applies to a specific parcel depends heavily on the lender, the builder, and the county’s permitting status for that address. It’s worth discussing case-by-case with a broker before you write an offer on land, not after, since the sequencing of land purchase and construction approval affects which loan structures are even available to you.
Land Purchase Loan FAQ
Can I get a 30-year mortgage for land only? No. Standard 30-year mortgages are underwritten against a home, and land-only loans instead use short terms of roughly 2 to 5 years, often with a balloon payment.
What credit score do I need for a land loan? Requirements vary by lender and land type, but land loans generally carry stricter credit overlays than home purchase loans, so a stronger credit profile improves both approval odds and pricing.
Is a land loan the same as a construction loan? No. A land loan finances the lot purchase alone, while a construction loan or construction-to-permanent loan finances the build and can include the lot cost within the same structure.
Can I use a VA loan to buy land only in Henrico? No, VA financing is not structured for a standalone land purchase; VA loans are designed around building or buying a home, and VA cash-out refinances go up to 100% LTV but apply to existing homes, not vacant parcels.
How much down payment is typical for raw land vs. a buildable lot? Raw land commonly requires 35% to 50% down, while an improved, buildable lot with utilities and a completed perc test often qualifies for 20% to 30% down.
Do land loans require an appraisal? Yes, most land lenders require an appraisal to establish current market value, and some also require a survey or updated perc test depending on the parcel’s history.
Can a broker check my pre-qualification without a hard credit pull? Yes, a credit-safe, soft-pull pre-qualification process can estimate what you may qualify for without affecting your credit score, which is useful before you commit to a specific parcel.
What happens if I don’t build within the loan term? If the balloon date arrives before you’ve built or refinanced, you’ll typically need to refinance the remaining balance, sell the land, or negotiate an extension with your lender, so it pays to have that plan mapped out well before the term ends.
Start With a Conversation Before You Write an Offer
Land-only financing isn’t a one-size-fits-all product. It’s a specialized, lender-by-lender process where down payment, term, and pricing shift based on zoning, infrastructure, and your build timeline. Trying to navigate that alone, or assuming your land purchase will price like a home mortgage, tends to cost buyers time and sometimes a lost contract. Working with a local broker who can compare terms across multiple wholesale lenders, rather than a single shelf, gives you a realistic picture before you’re locked into a deal that doesn’t fit your parcel.
Your dream home in Henrico County is closer than you think. Discover exactly what you can afford with a credit-safe pre-qualification process that protects your score while unlocking your options. Get pre-qualified today and take the first step toward homeownership with a local mortgage expert who understands your community.