Such a loan that can be used to fund the purchase of a plot of land is a loan for land purchase, sometimes referred to as a land loan or a lot loan. Purchasing land with the help of a land loan can be done for a number of reasons, including home construction, business startup, and investment.

Because land loans are riskier for lenders, they are usually harder to qualify for than conventional mortgages. Since land doesn’t generate revenue, lenders have less collateral to fall back on in case of failure. Because of this, land loans usually have higher interest rates and down payment requirements than mortgages. Here we discuss loans for land purchases

What is a land loan?

A kind of home loan that you might get from a bank or another lender to buy undeveloped land is a land loan. This is usually done with the intention of developing a house on the land in the future—either as a residence for you or as an investment. Another scenario is that the buyer wants to hang onto the land as an investment, hoping to sell it later on if its value rises. The block of land is used as collateral for a loan against vacant land.

Since land loans are thought to be riskier than other kinds of home loans, lenders may be more cautious when approving them. 

Things to think about when applying for a land loan

When applying for a land loan, keep the following things in mind:

Size of land

The amount of the deposit you must pay to get the loan will depend on the size of your land. Although each lender has its own guidelines, in general, if the land is up to 11 hectares in size, you can borrow up to 95% of its value. A minimum deposit of 20% is often required for any amount larger than this. If your deposit is less than 20%, you will be obliged to pay Lenders Mortgage Insurance (LMI).


“What goals do you have?” Not just the horrifying question about the land your new love’s parents might ask you, but also the question the lender will pose. If you’re buying a house for investment purposes, the lender will want to know if you plan to live there. They’ll also ask what your intended build date is. You will be viewed as more vulnerable if you have no plans at all or if you want to build within the next few years.


The land must have a road that a regular car can use to access it, and the lender will want to know if it is in a regional or urban area. When it comes time to develop, the site will also determine which zoning laws and local council limits apply.

Land that is registered versus unregistered

Land that is registered has roads, power, and other infrastructure and services attached to it. It also has any necessary approvals and registrations with the appropriate authorities. Developers can sell and accept deposits for unregistered land, but it lacks all of these features. But if you want to purchase unregistered land, a lender won’t allow you to borrow money for it.  


Your land must be within the range of an electrical grid in order to connect, much like a road is necessary. Although access to town water and sewage infrastructure isn’t normally necessary, not having it could reduce your ability to borrow money.

What is a vacant loan?

A bank loan or other lender used to buy an empty plot of land is known as a vacant land loan. Many people want to build their own homes instead of purchasing pre-existing property, and a loan for unoccupied land helps them realize this ambition. The majority of buyers of vacant land do so with the intention of developing it soon.

A construction loan, which is a loan intended to support a building of any kind, including reconstruction, demolition, and renovations, is not the same as a land loan. A loan secured solely for the land is obtained through a vacant land loan or land loan. While some apply for both, others first obtain a land loan and then add a building loan to it.  

The distinctions between construction loans and loans for undeveloped land

When financing your home construction, understanding the critical differences between land and construction loans is essential. 

AspectLand LoanConstruction Loan
Purpose and Usage of FundsFor acquiring undeveloped or improved landfinancing land acquisition and home construction
Loan Terms and RepaymentShorter loan terms (typically 5-10 years)Customizable terms based on project timeline, typically short-term with refinancing option
Interest Rates and FeesHigher interest rates and potential additional feesLower interest rates (variable or fixed) may require interest-only payments during construction

Land Loan interest rates

Basic variable

  • 6.19% p.a., – Principal and interest
  • 6.19% p.a., – Comparison rate Superscript 

Interest rate with a special offer discount when borrowing 60% or less of the property value.  

Standard variable with optional offset 

  • 6.99% p.a. – Principal and interest
  • 6.99% p.a.- Comparison rate Superscript 

Discounted standard variable rate when borrowing 80% or less of the property value.    


  • 6.24% p.a.-  principal and interest
  • 6.84% p.a.- Comparison rate Superscript 

Discounted 2-year fixed rate when borrowing 80% or less of the property value. 

How to apply for a land loan

  1. Choose a lender:  Not all lenders offer land loans, so you will need to do some research to find a lender that is right for you. You can compare land loan offers from multiple lenders to find the best deal.
  1. Get pre-approved: Getting pre-approved for a land loan before you start shopping for land can give you an idea of how much you can afford to borrow and what your interest rate will be. This can also make the purchase process smoother and faster.
  1. Gather your documentation: When you apply for a land loan, you will need to provide the lender with documentation of your income, assets, and employment. You may also need to provide the lender with a copy of the purchase agreement for the land.
  1. Submit your application: Once you have gathered all of your documentation, you can submit your loan application to the lender. The lender will then review your application and credit report to determine whether you qualify for the loan.
  1. Close the loan:  Once you have been approved for the loan, you will need to close it.  the loan. This is when you will sign the loan documents and receive the funds to purchase the land.

Here are some of the documents you may need to provide when applying for a land loan:

  1. Proof of income: This could include your W-2 forms, pay stubs, or tax returns.
  1. Statements from retirement accounts, investments, and banks could be used as evidence of assets.
  1. Credit report: You can obtain a free copy of your credit report from each of the three major credit bureaus once per year at
  1. Loan application: This will include information about your personal information, employment, and financial status.
  1. Property appraisal: The lender will order an appraisal of the land to determine its value.

 What to look for when applying for a land loan

It’s key to compare land loans while keeping in mind factors like the interest rate, any potential fees, the size of the required deposit, and your personal goals and ambitions for the land itself.

Rates of interest

Lenders may charge higher interest rates for land loans because they perceive them as riskier than other house loan categories. This could result in larger loan payments over the course of the loan. It is therefore advisable to take into account which lenders could be able to provide you with the lowest interest rates when comparing loans.

Charges and fees

Comparing should also take into account the fact that some lenders may charge higher costs due to the risk associated with land loans. Lenders are required to provide you with information about comparative rates, which are estimates of the total cost of a loan over a year that include interest as well as fees and levies.


You will be asked to pay a larger deposit if the loan’s LVR is lower. You might have to pay less of a deposit if a lender provides you with a land loan with a high LVR, but it’s crucial to maintain the loan’s comparability rate. 

Your future objectives

Another important factor is what you intend to do with the land. Lenders may be more inclined to lend you money on terms that suit you if you can approach them with a clear plan for what you want to do with the land you want to buy.

What form of land loan and what kind of deposit is required? 

According to your lender and the cost of the block you want to buy, different deposits are needed for different types of land loans. It’s important to remember that land loans can have lower loan-to-value ratios (LVR) requirements than other kinds of home loans, which could mean a larger deposit.

The maximum percentage of a loan that a lender is willing to give you is known as the LVR. For instance, your loan application may be approved for 80% of the land’s worth; this means you will need to pay the remaining 20% as a deposit.

The LVR may be less than 80% because lenders are typically cautious when providing land loans, which would necessitate paying a greater deposit. However, the precise LVR would be up for discussion between you and your lender.


Because land loans carry greater risk for lenders, qualifying for them may be more challenging than for conventional mortgages. Since land doesn’t generate revenue, lenders have less collateral to fall back on in case of failure.

Because of this, land loans usually have higher interest rates and down payment requirements than mortgages. If you’re thinking about purchasing land, financing your acquisition with a land loan can be a smart idea.