The number of private lenders offering loans secured by land is very limited. The ones that do consider land will be very conservative on the loan-to-value, typically no more than 50% LTV or 50% LTC (loan-to-cost). And the interest rate may be much higher than loans secured by improved property since the risk is so much higher.

Why Won’t Many Private Lenders Consider Land?

Private lenders always have to consider the worst-case scenario when evaluating a potential loan funding. That worst-case scenario is having to foreclose and own the subject property. So a better question is: “Why would a lender not want to own land?”

  • Difficult to Sell
    Land is the least desirable type of real estate. Even if the asking price is 50% of the value, there are not many buyers out there for unimproved real estate.
  • Lack of Income
    Most land does not produce any income. If a lender is not able to quickly sell the property, they will have to hold it for a long term while having to pay property taxes and other expenses.
  • Lack of Development Experience
    Even if the land has entitlements and can be developed, a lender may not have the expertise or experience to continue the project.

Lenders who do consider land may only consider certain types of land:

Urban Land: Located in a heavily populated area
Suburban Land: Located in a moderately populated area
Rural Land: Located in a small town or remote area
Raw Land: Has no utilities
Agricultural Land: Use for operating an agriculture business
Recreational Land: Use for a sporting or recreation business
Timberland: Forested property

Some lenders will only consider land that has entitlements. This makes the land more marketable in case the lender has to foreclose and ends up owning the property.

Here on, all lenders that consider land have to specify their criteria for lending on land, including the type of land, maximum LTV, and other guidelines.