Land Loan Calculator

A land loan is a mortgage used to buy undeveloped or raw land rather than a home or a commercial building. Lenders treat land as higher risk than a house, because a bare parcel generates no income and is far harder to sell in a foreclosure. That risk comes back to you as stricter terms: more down, a higher rate, and a shorter run before a balloon payment.

Monthly Payment Formula (same as standard amortization): M = P × [r(1+r)^n] ÷ [(1+r)^n − 1]

Total Interest Paid = (M × n) − P

What each variable means:

• M: monthly payment amount
• P: principal loan amount (land purchase price minus down payment)
• r: monthly interest rate = Annual Rate ÷ 12 (expressed as decimal)
• n: total number of monthly payments = Loan Term in Years × 12

How land loans differ from home mortgages:

• Higher interest rates: typically 1–3% above conventional mortgage rates
• Larger down payment required: usually 20–50% (vs. 3–20% for homes)
• Shorter loan terms: commonly 10–20 years (vs. 30 years for homes)
• Stricter income/credit requirements: lenders offset higher risk with tighter underwriting

Land loan types:

• Raw land loan: unimproved land with no utilities or road access. Hardest to finance, highest rates.
• Unimproved land loan: has some infrastructure (utilities nearby) but no structures.
• Improved land loan: platted lots with utilities, roads, and permits. Easiest to finance, closest to residential rates.

Worked example: You purchase a 5-acre rural lot for $120,000. You put 30% down ($36,000) and finance $84,000 at 8.5% for 15 years.

r = 8.5% ÷ 12 = 0.7083% = 0.007083 n = 15 × 12 = 180 payments

M = 84,000 × [0.0070833 × (1.0070833)^180] ÷ [(1.0070833)^180 − 1] (1.0070833)^180 = 3.56256 M = 84,000 × [0.0070833 × 3.56256] ÷ [3.56256 − 1] M = 84,000 × 0.0252348 ÷ 2.56256 M = 84,000 × 0.0098474 = $827.18/month

The intermediate figures above are rounded for reading. Carry the full precision through and you land on $827.18, which is what the calculator returns.

Total paid = $827.19 × 180 = $148,893 Total interest = $148,893 − $84,000 = $64,893

Note how much of that is interest: on a 15-year land loan at 8.5% you pay 77 cents of interest for every dollar of principal. Land loans are short, which limits the damage, but the rate does the rest. The same $84,000 at a 6.5% home-mortgage rate over 15 years costs $47,711 in interest, about $17,000 less, and that gap is what lenders charge for taking dirt as collateral.

Two ways to spend less on it. If you plan to build within a year or two, ask about a construction-to-permanent loan that folds the land purchase and the build into a single closing, at rates much closer to a normal mortgage and with one set of closing costs instead of two. And if the seller owns the parcel outright, ask about seller financing: it is common on rural land, the terms are negotiable, and it sidesteps a bank category that does not want the loan anyway.