Land Loans vs. Home Loans: What’s the Difference and Why It Matters

Buying land is a big step—and if you’ve ever financed a home before, you might assume the process is similar. But land loans and home loans are two very different animals, and understanding those differences can save you time, money, and a lot of confusion. 

Let’s start with the basics. A home loan is designed for a property that already has a house on it. It’s a well-worn path, with predictable terms and plenty of lenders offering options. A land loan, on the other hand, is for raw or undeveloped land—and that changes the game.

Joseph Reed, Branch Manager in Demopolis, AL puts it best. “The difference between land and home loans can sometimes be like night and day. Having an experienced lender guide the borrower through the land financing process is pivotal to a smooth transaction. Not only can our team find the right lending product for our borrowers, we will also assist in navigating the entire process to ensure the property being purchased has clear and merchantable title, legal access and is described correctly. After all, helping borrowers make smart and informed decisions is what we do best.”

Land loans often require a larger down payment, sometimes 15 to 30 percent or more. The terms can be shorter, and the interest rates might be a bit higher, depending on the property and your plans for it. That’s because land is considered a riskier investment—there’s no house to serve as collateral, and the value can be harder to pin down. 

Another key difference? Not every lender offers land loans. You’ll want to work with someone who understands rural property and can guide you through the process. That’s where we come in. 

At First South Farm Credit, we specialize in land financing. We’ll help you use tools like a land loan calculator to estimate your payments and explore options that fit your goals. Because when you understand the difference between land loans and home loans, you’re better equipped to make a smart, confident decision.