If you're looking to purchase land in Texas, we have some good news — whether it's for building your dream home to raise a family, recreational use, or investment, owning land in Texas has plenty of perks! Financing land can be a little more complex than securing a mortgage for a home. From land loans to owner financing, there are various ways to finance land purchases, and understanding your options can help you get the best deal. In this comprehensive guide, we will cover your options for financing a home in Texas — let’s jump right in!
How to Finance Land in Texas: A Complete Guide to All Your Options
If you're looking to purchase land in Texas, we have some good news — whether it's for building your dream home to raise a family, recreational use, or investment, owning land in Texas has plenty of perks!
Financing land can be a little more complex than securing a mortgage for a home. From land loans to owner financing, there are various ways to finance land purchases, and understanding your options can help you get the best deal. In this comprehensive guide, we will cover your options for financing a home in Texas — let’s jump right in!
Do Land Loans Differ from Home Loans?
Although land loans and home mortgages share some similarities, there are a few key differences.
Because land purchases are considered riskier, they generally come with higher interest rates and require larger down payments. Additionally, repayment periods for land loans are often shorter than home mortgages — sometimes as short as five years. However, much like a traditional mortgage, a land loan will involve an application process, including steps like a credit check, survey, and appraisal.
Beachside helps buyers through the entire lending process and can assist in finding the most competitive interest rates and lowest down payments (see example callout). Yes, we have a closing coordinator who can work with their lender or any of the ones we have built a relationship with to find the right match for their situation.
Also, our lots usually appraise over our sale prices, which helps with securing funding.
Types of Land Loans in Texas
When financing a land purchase in Texas, the first thing to understand is that not all land is created equal in the eyes of lenders. The type of land you're buying will determine the loans available to you and the terms of those loans. Let's look at different kinds of loans and how they work for various types of land:
Raw Land Loans
Raw land is essentially undeveloped land — it's untouched, with no infrastructure like electricity, water, or road access. Because it is a blank slate, lenders can consider it a risky investment.
Developing raw land takes significant time and resources, making it harder to resell in case of a loan default. Due to the high risk, raw land loans typically come with higher interest rates and require larger down payments.
However, the beauty of raw land ownership lies in its flexibility. If you have a vision for the property and are prepared to invest in development, a raw land loan might be the right fit for you. Be sure to work with a lender familiar with the complexities of raw land purchases, and be ready for a thorough application process.
Unimproved Land Loans
Unimproved land is slightly more developed than raw land. While it doesn't have full utility services like electricity or water installed, it might have access to these infrastructures nearby. Loans for unimproved land tend to be easier to secure and have more favorable terms than raw land loans because the land is closer to development, lowering the risk for lenders.
Improved Land Loans
Improved land already has infrastructure like roads, utility hookups, and possibly even zoning for residential or commercial use. If you're planning to build a home or business on the property — improved land is the easiest option to finance.
Lenders view improved land, like our community at Beachside in Palacios, as a lower-risk investment, making land loans for this type of property more accessible. You'll likely need a down payment of around 10%,. Plus, Beachside lots are priced lower than the competition, giving you more value for your investment. If you're a first-time buyer looking for an easier financing process, an improved land loan might be your best bet. Additionally, Beachside gives you 100% of the earnest money back if you get denied financing, meaning virtually no risk for you.
Down Payments for Land Loans
One of the most significant considerations in buying land and building a house in Texas is the down payment.
Most lenders require a down payment of 20% or more. Riskier properties (like raw land) may require a down payment of 30–50%. Some lenders might offer lower down payment options with trade-offs, like higher interest rates. If you're purchasing improved land, a higher down payment will reduce the amount you'll need to borrow for future construction loans when you're ready to build. It's not uncommon to get denied at one lender but approved at another, as every company has a unique set of requirements.
Land Loan Options for Different Needs
The Lone Star State has solid land loan options to suit your specific needs. Some of the most common land loan options in Texas include:
- Traditional Land Loans — Offered by banks and credit unions, these loans are structured similarly to a home mortgage.
- Recreational Land Loans — If you're looking to buy land for recreational purposes (think hunting, camping, or fishing), recreational land loans are a popular option in Texas. These loans can come with slightly different terms based on the intended use of the property.
- Texas Veterans Land Board (VLB) Loans — If you're a veteran, you may qualify for a loan through the Texas Veterans Land Board, which offers competitive interest rates and flexible loan terms.
How to Prepare for a Land Loan
Just like with a home mortgage, preparation is key when applying for a land loan. Before you begin the land loan application process, it's essential to get your finances in order:
- Check your credit score — A healthy credit score is the first step to favorable loan terms. As a general rule, the higher your score, the lower your interest rates will be.
- Calculate your debt-to-income ratio — This ratio will help determine how much you can afford. Lenders want to see that your debt levels are manageable in comparison to your income, so the lower your ratio, the better your loan terms are likely to be.
- Understand the costs — From surveys and appraisals to closing costs, purchasing land involves multiple expenses. Before proceeding, ensure you have a clear understanding of all the associated costs to ensure that buying property in Texas is a good investment for you.
- Start with a simple loan application — The process begins with a straightforward loan application, and the bank will handle the rest. Plus, Beachside covers most of the closing costs, making the process even smoother.
- Remember, a good developer will take the risk and confusion out of the process, making it smooth and straightforward. You should never feel intimidated or overwhelmed by the loan.
Own a Desirable Plot of Land in Texas at Beachside in Palacios
Ready to claim your piece of the Texas Gulf Coast in the charming town of Palacios, TX?
Book a tour to discover why our waterfront, build-ready lots at Beachside are perfect for building your dream home, a second residence, or an investment property. Since the lots at Beachside are considered improved land, with attractive amenities, private beaches, utilities, and infrastructure, you can secure favorable land loans and enjoy all the benefits of a lower-risk land investment.
Join us at Beachside!