When applying for a land loan, the down payment is one of the biggest factors shaping your overall costs. Unlike traditional mortgages, where 5–20% may be enough, land loans often require 20–50% upfront. The size of your down payment affects not only how much you borrow but also your monthly payment, interest rate, and total cost over the life of the loan.
Why Land Loan Down Payments Are Higher
Lenders consider land purchases riskier than home loans. Raw or vacant land doesn’t generate income, and selling it in case of default takes longer. To offset that risk, lenders ask for larger down payments:
- Improved land (utilities, roads): 15–20% down
- Vacant land (ready to build but undeveloped): 20–30% down
- Raw land (no utilities, remote): 40–50% down
A bigger down payment reassures the lender and lowers your financing costs.
How Down Payment Size Changes Your Loan Costs
1. Loan Amount
The higher your down payment, the less you need to borrow.
Example on $100,000 parcel:
- 20% down ($20,000) → loan = $80,000
- 40% down ($40,000) → loan = $60,000
2. Interest Rates
Many lenders reward larger down payments with better rates because the loan carries less risk. A 40% down payment could lower your interest rate by half a percentage point or more compared to 20% down.
3. Monthly Payments
Here’s how different down payments affect monthly costs (15-year loan, example rates):
| Down Payment | Loan Amount | Rate | Monthly Payment |
|---|---|---|---|
| 20% ($20k) | $80,000 | 9% | ~$812 |
| 30% ($30k) | $70,000 | 8.5% | ~$690 |
| 40% ($40k) | $60,000 | 8% | ~$575 |
4. Total Interest Paid
The long-term savings are even more striking:
- At 20% down, you might pay over $66,000 in interest.
- At 40% down, interest could drop below $43,000.
That’s more than $20,000 saved just by putting more money down upfront.
Other Costs to Factor In
Even with a larger down payment, your total loan cost also depends on:
- Property taxes (varies by county and state)
- Insurance (sometimes required by lenders)
- Closing costs (2–5% of the loan amount)
Always budget for these in addition to your monthly loan payment.
Planning Your Down Payment
- Run scenarios: Use a land loan calculator to see how different down payments change your monthly payment and total interest.
- Balance savings: Don’t drain all your cash. Leave a cushion for taxes, improvements, or unexpected expenses.
- Consider loan type: Raw land usually requires higher down payments; improved land may be easier to finance.
FAQs
1. Does a larger down payment lower my monthly payment?
Yes, because you borrow less, which reduces both the balance and interest.
2. Can putting more down reduce my interest rate?
Often, yes. Lenders may offer lower rates when the loan-to-value ratio is smaller.
3. What’s the typical down payment for land loans?
Between 20% and 50%, depending on land type and lender requirements.
4. Is it better to put down the minimum or more?
If you can afford it, paying more upfront lowers your monthly costs and saves thousands in interest.
5. Are there tools to calculate savings from bigger down payments?
Yes — a land loan payment calculator can show how down payment size affects your costs.
Final Takeaway
Your down payment is the biggest lever for controlling land loan costs. A larger upfront payment means lower monthly payments, reduced interest, and overall savings in the long run. Before applying, run the numbers and see how much you could save by putting more down today.
Tracey is the creator of LandLoansCalculator.com, a trusted resource for accurate and easy-to-use land loan calculators. With a strong focus on clarity and reliability, Tracey is dedicated to helping users understand land financing with confidence. Her goal is to simplify complex calculations so buyers, investors, and professionals can make informed decisions quickly and efficiently.