By Diane, Commercial Mortgage Agent
Getting financing for raw land isn’t just about the down payment. It’s about knowing the terrain — both literal and financial.
Land loans are some of real estate’s most misunderstood and under-prepared-for financing products. I’ve seen amazing projects stall, lose months (or money), all because someone assumed the process was simple.
Here’s what I wish every developer knew before picking up the phone:
- Zoning Isn’t Just a Checkbox — It’s the Whole Playbook
The first thing a lender looks at is the zoning. Not your vision. Not your rendering. The actual legal use of the land right now.
Even if you intend to rezone, if it’s not done, they may value the land at its current (lower) use, like agricultural, instead of high-density residential. That means a lower loan amount, tougher leverage, and more cash will be needed by you.
🔍 Pro tip: Don’t rely on “in progress” zoning unless approved.
- The Appraisal Can Be Your Ally — Or Your Achilles Heel
Land appraisals are trickier than most assets. They’re susceptible to:
- Current zoning
- Location
- Servicing status
- Comparable land sales (which are often rare)
If you’re using a feasibility study with higher valuations, be aware: lenders will use the present market value, not your dream spreadsheet.
📌 My tip? Work with an AACI-certified appraiser who knows development land. And if the lender wants to pick the appraiser, ask for input on the scope.
- Soft Costs Are Your Silent Bank Drainers
You know what’s not usually included in a land loan?
✅ Planning fees
✅ Legal
✅ Engineering reports
✅ Carrying costs like taxes and interest
These soft costs can quietly burn through your capital if you’re unprepared. Lenders often expect you to cover these upfront, out of equity or cash.
💡 Budget tip: Pad your soft cost estimate by 5-7%. It’s never cheaper than you think.
- Your Exit Strategy Matters
A land loan isn’t about what you have now but what you’re building next.
Lenders want to know:
- Will you sell the land?
- Refinance into a construction loan?
- Partner with a builder?
- Subdivide and sell lots?
No clear exit = no loan.
🎯 Advice: Map out your exit before you apply. It makes your file stronger and your lender less nervous.
- Lender Fit > Fancy Rates
You can’t force a land loan through a lender that doesn’t get land.
The right lender is one that:
- Understands your municipality or region
- Is comfortable with raw or unserviced land
- Knows how to underwrite future potential with realistic timing
👋 This is where I come in. I don’t just send deals out and cross my fingers. I position, present, and partner you with lenders who understand your vision. DM today @diane@uccmortgageco.com
🔚 Final Thoughts:
Land loans are high-risk for lenders, but they’re high-reward for developers when done right.
Arm yourself with the right plan, presentation, and team, and you’ll turn “difficult to finance” into “approved and funded.”