Land Development in rural towns

Using a Personal Loan To Buy Land: Everything You Need To Know

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Imagine driving down a country road and seeing a “For Sale” sign nailed to a post in a field. The land is beautiful. It has rolling hills, a river and tall trees. It’s a lucky find because you’ve always wanted to own property.

All you need to do is figure out how to finance the purchase. Personal loans can help you finance land purchases without tying up your cash. If you’re considering using a personal loan to buy land, here’s everything you need.

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Can You Use a Personal Loan To Buy Land?

Yes, it’s possible to use a personal loan to buy land. Personal loans are one of the most flexible types of loans; they can be used for many different reasons, which is part of their broad appeal.

Whether you plan to use the personal loan for purchasing land or for something else (like debt consolidation or a vacation) doesn’t usually matter to the lender. Their decision on whether or not to issue the loan will be based on the strength or weakness of your application, which includes factors like your credit score and your debt-to-income (DTI) ratio.

How To Buy Land With a Personal Loan

The first step to buying a property with a personal loan is to find a lender and apply for a loan. 

Application requirements will vary from lender to lender. Still, you can generally expect to provide some personal information (your name, address, Social Security number), information about employment and income and details about your financial history (your credit score and DTI ratio). We’ll cover more specific requirements in the next section.

If the lender approves your loan application, they will hand you a personal loan agreement that outlines the loan terms, including the interest rate, monthly payment and repayment schedule. Make sure you read and understand these terms before accepting the loan.

Once the loan is approved and you sign the loan agreement, the funds will be transferred to you. From there, you can use that money to purchase the land.

Getting a personal loan is usually a fast process, and some lenders can even review your application and issue the funds in as little as one business day.

Personal loan eligibility requirements

You must meet some basic eligibility requirements to qualify for a personal loan. The requirements will vary by lender but typically include:

  • A good credit score: A lender’s interest rate will partially rely on your credit score. Most lenders require a credit score in the mid-600s or higher to qualify for a personal loan. The higher your credit score is, the lower your loan interest rate.
  • A steady income: Like any lender, personal loan lenders want proof of a steady income. Whether a full-time employee or self-employed, you’ll need to submit proof of income to qualify.
  • A low debt-to-income (DTI) ratio: Your DTI ratio is the percentage of your gross income that goes toward paying recurring debts. Lenders use your DTI ratio to determine whether you can afford to repay the personal loan and your other bills.

Personal loans come in two varieties: secured and unsecured. Secured personal loans require collateral (think: a house, car, bank account or valuable work of art), but unsecured personal loans don’t.

When you take out a personal loan, you borrow a lump-sum amount from a lender and repay the loan over an agreed period (or term), usually 2 – 5 years. As with any loan, the amount you can borrow will depend on your credit history and income. But the borrowing limits for personal loans typically range from $2,000 to $45,000.

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Pros and Cons of Buying Land With a Personal Loan

We’re going to explore the advantages and disadvantages of using a personal loan to purchase land here.

PROS of buying land with a personal loan👍

Quick financing

You can get financing for your land purchase quickly. In some cases, you may even get the money within a single day.

Shorter terms

Personal loans typically have shorter terms than other loans. That means you can pay off the loan and the interest you accrue in a shorter period.

Lower fees

Because most personal loans have lower origination fees and prepayment penalties than other loans, they can be a more cost-effective way to finance a land purchase. There are fewer upfront costs compared to other types of loans.

No collateral required

Personal loans are typically unsecured loans. You won’t need to offer collateral, like your home, car or the land you’re purchasing, to secure the loan.

CONS of buying land with a personal loan👎

Smaller loan amount

Personal loans typically have smaller loan amounts than other loans. If you want to buy a larger property, that can be a disadvantage.

Higher interest rates

Personal loan interest rates typically start around 10% – 11%.[1] In some cases, they can go as high as 36%. Your interest rate will depend on factors like your credit score and DTI.

Higher credit score requirements

The credit score requirements for personal loans are typically higher than for other loans. What score you’ll need to qualify will vary by lender, but most personal loan lenders require a score of roughly 650 or higher.

The tallest hurdle you’ll need to clear with personal loans is the loan amount. Personal loans typically have smaller loan amounts than other loans.

A personal loan may not be the best option to finance a cattle ranch or an island, but they are an excellent option to finance the purchase of smaller plots of land.

Alternative Ways of Buying Land 

If personal loans aren’t the right fit for you, there are other ways to finance a land purchase. The best option will depend on your building goals and personal finances. Let’s take a detailed look at some alternative financing options.

Land loans

A land loan finances the purchase of land. Land loans typically have higher interest rates and require larger down payments because they are considered riskier loans.

There are different types of land loans, depending on how developed or undeveloped the land is that you’d like to purchase. The upside with this type of loan is that you can get them for higher values than a personal loan.

Construction loans

A construction loan finances the construction of a new home. 

You can withdraw money from the loan when necessary to pay for the land, the architect, the permit fees and other construction-related expenses. The construction loan typically converts to a mortgage once the home is built.

If you plan on building a house on the land you purchase, a construction loan may be the right fit.

One significant advantage of using a construction loan to build a house is that you can roll the cost of the land and building costs into a single loan. That’s one loan, one closing, one monthly payment – saving you time and money.

Home equity loans

You can take out a home equity loan to finance a land purchase if you’re a homeowner. Home equity loans allow you to borrow against the equity in your home. 

Home equity loans often have lower interest rates than personal loans. But they’re not without risk. If you can’t make your payments, you could lose your home.

Home equity line of credit

Another option for financing land purchases is a home equity line of credit (HELOC). With a HELOC, a lender gives you a credit limit based on the equity in your home, which you can withdraw from as needed.

Many homeowners choose HELOCs because they offer more flexibility than personal loans or home equity loans. With a HELOC, you can borrow money from your line of credit in increments. And you only pay interest on the money you borrow, not the entire line of credit.

A significant difference between HELOCs and personal loans is that HELOCs typically have variable interest rates, while most personal loans have fixed rates. With a HELOC, your monthly payments could go up or down over the loan’s lifespan.

Seller financing

You can enter a seller financing agreement if the seller agrees to finance the land purchase. The seller holds on to the mortgage and becomes your lender. Because the seller is your lender, you will make your monthly payments to the seller.

Seller financing can be a good option if you’re having trouble qualifying for a loan from a lender. The seller may even be more open to negotiating the price because they are financing the purchase.

USDA loans

A USDA loan might be a good option if you plan on buying land in a rural area. The U.S. Department of Agriculture offers loans to buyers who want to buy land in areas the agency has designated as rural.

To qualify, you must meet the USDA’s income eligibility requirements, and the property must be your primary residence.

Buying land with loans FAQs

Should you pay cash or take out a loan to buy land?

Paying cash may seem like a good idea. There’s no loan to repay or interest to worry about. However, buying land is a huge capital investment. Once it’s spent, it’s no longer available for other assets, retirement savings or emergencies.

Can I get a personal loan with bad credit?

It’s possible to get a personal loan with bad credit. Just keep in mind that your credit score will impact the interest rate that’s offered and other terms of the loan, like how much the lender will be willing to give you. In the long run, you might be better off taking the time to improve your credit first.

Final Thoughts on Using a Personal Loan To Buy Land

Now that we’ve helped you navigate the ins and outs of personal loans, home equity loans, HELOCs, seller financing and USDA loans, we know you’re better positioned to decide which loan is right for you.

But before you land on an answer, compare interest rates, monthly payments and loan terms as well as the conditions for each type of loan you consider. There is a loan out there that can make you the proud owner of your very own field of dreams.

Get Prequalified for Loans from $2,000 to $45,000

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The Short Version

  • To use a personal loan to buy land, find a lender then apply for the loan. The lender will review the application and if approved, transfer you the money to use
  • One of the biggest drawbacks of using a personal loan for this purpose is they’re usually capped at around $45,000. It can be difficult to purchase land at that price point
  • Construction loans, home equity loans, HELOCs, seller financing and USDA loans can all finance land purchases
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  1. National Credit Union Administration. “Credit Union and Bank Rates 2023 Q23” Retrieved December 2023 from https://ncua.gov/analysis/cuso-economic-data/credit-union-bank-rates/credit-union-and-bank-rates-2023-q3

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