Land Loans Are Not Mortgages. Here's What Actually Changes.

When I started researching land purchases for a small development project, I assumed the financing would work like a standard mortgage. It does not. Land loans have different rates, different terms, different down payment requirements, and different risk profiles. Understanding these differences saved me from a costly mistake. Why land loans cost more Banks consider land loans riskier than mortgages for a simple reason: if you default on a mortgage, the bank gets a house. A house has clear market value and can be resold relatively quickly. If you default on a land loan, the bank gets an empty lot. Raw land is harder to appraise, harder to sell, and may sit on the bank's books for years. This risk premium shows up in three ways: Higher interest rates. Expect 1% to 3% above conventional mortgage rates. If mortgages are at 6.5%, land loans might be 7.5% to 9.5%. Larger down payments. Most lenders require 20% to 50% down on land, compared to 3% to 20% for a home. Shorter terms. Land loans