Can You Get a Mortgage for Land?

The financing available for a land purchase depends partly on whether the property is raw, vacant, serviced, agricultural, or intended for immediate construction.

• Raw land: Undeveloped land that may lack road access, electricity, water, sewer, or other services. Raw land is generally the most difficult type to finance and may require the largest down payment.
• Vacant land: Land without a completed building. It may be raw, partially serviced, or fully serviced, so lenders will consider the property’s specific features.
• Serviced lot: A vacant building lot with access to some or all essential services, such as roads, electricity, municipal water, and sewer. Serviced lots are generally easier to finance than raw land.
• Agricultural land: Land used or intended for farming. Financing may be available through agricultural lenders or programs, but eligibility depends on the property’s use and the borrower’s farming plans.
• Construction-ready land: Land where the buyer plans to begin construction soon. A construction loan may finance part of the land purchase and building costs, subject to plans, permits, a budget, and lender approval.

A property may fall into more than one category. For example, a serviced lot is also vacant land, while agricultural land may be raw or improved.

Before buying land, confirm that the property is suitable for your intended use. A lender may also consider these factors when deciding whether to finance the purchase and how much you can borrow.

Important items to investigate include:

• Zoning and permitted use: Confirm that local zoning allows your planned home, farm, business, or other development.
• Legal access: Make sure the property has registered road access rather than relying on an informal route across another property.
• Utilities and services: Determine whether electricity, water, sewer, natural gas, and internet are available and estimate connection costs.
• Well and septic requirements: Rural land may require testing to confirm that a well and septic system can be installed.
• Building permits: Check whether the intended development can meet municipal building, setback, environmental, and other requirements.
• Survey and boundaries: Review an up-to-date survey for property lines, easements, rights-of-way, and encroachments.
• Environmental and physical conditions: Investigate wetlands, flood risk, contamination, drainage, soil conditions, and other restrictions that could affect development.
• Development costs: Account for permits, surveys, utility connections, site preparation, road construction, development charges, and professional fees.
• Taxes and restrictions: Review property taxes, special assessments, restrictive covenants, and any rules affecting the property.

Consider making the purchase agreement conditional on satisfactory financing, zoning, access, inspections, and other necessary approvals. A real-estate lawyer, surveyor, engineer, municipality, or environmental professional may be needed to verify some of these matters.

Several financing options are available for buying land in Canada. The required down payment, interest rate, and maximum loan amount depend on the property’s location, zoning, legal access, servicing, intended use, and development plans, as well as the borrower’s credit, income, and available assets. Raw land without utilities or road access is generally more difficult to finance than a serviced building lot.

Comparison of Types of Loans You Can Get for Land

Note: The figures shown are general examples rather than guaranteed lending limits. Requirements vary significantly by lender, province or territory, land type, intended use, and borrower qualifications. Buyers should compare the interest rate, lender and broker fees, repayment term, amortization, prepayment conditions, and legal costs, rather than comparing only the required down payment.

A land loan, also called a land mortgage, is financing used to purchase land without a completed home or other qualifying building. The loan is secured against the land, meaning the lender can take legal action to sell the property if the borrower defaults.

Land loans are generally riskier for lenders than residential mortgages because undeveloped land can be harder to value and resell. The risk is greater for raw land without legal road access, utilities, municipal services, or immediate development plans. Lenders also consider the land’s location, zoning, intended use, and marketability when reviewing an application.

Because of this higher risk, land loans generally require a larger down payment and may have higher interest rates than residential mortgages. A serviced lot may require approximately 20% to 35% down, while raw or unserviced land may require 35% to 50% or more. Actual requirements vary considerably by lender, property, and borrower.

Land loans may be available from banks, credit unions, alternative lenders, and private lenders, although not every lender finances every type of land. A mortgage broker experienced with land financing may help you compare options from alternative lenders and other financing sources.

If you plan to build a home on the land you are purchasing, a construction loan may finance part of both the land purchase and construction costs. Some lenders offer uninsured financing of up to 80% of the home’s estimated value upon completion, although limits and calculation methods vary by lender and project.

To qualify, you generally need approved building plans, permits, a detailed construction budget, and sufficient funds for the down payment and cost overruns. Your budget should account for labour, materials, permits, professional fees, and expenses such as concrete, lumber, fixtures, and utility connections.

If you do not yet own the land, the purchase agreement may need to be conditional on financing, zoning, permits, and other due diligence. You can usually prepare preliminary plans before closing, but applying for permits may require the seller’s authorization. The lender may provide conditional approval and require final plans and permits before releasing construction funds.

Unlike a conventional mortgage, a construction loan is not advanced as a single lump sum. Funds are released through a series of draws as your custom home reaches specified construction milestones. An inspection or appraisal is generally required before each draw is released.

Depending on the lender, an initial advance may help finance the land purchase. Other lenders may require you to own the land or contribute substantial equity before construction draws begin. You may also need enough cash to pay contractors and cover other expenses between draws.

During construction, you generally pay interest only on the amount advanced, rather than the entire approved loan. Once construction is complete, the loan may be converted into a conventional mortgage, and regular principal-and-interest payments begin.

If you are buying land for farming, agricultural loans may help finance the farmland purchase, farm buildings, equipment, livestock, and other eligible expenses. These loans are available from specialized agricultural lenders, banks, and credit unions. Loan limits, down payment requirements, repayment schedules, and eligible uses vary by lender and loan program.

Farm Credit Canada (FCC) is a federal Crown corporation specializing in financing for Canadian agriculture and food businesses. FCC offers financing for farmland and farm buildings, equipment, livestock, operating inputs, farm transitions, and other agricultural purposes. It also provides financing options for young farmers starting or expanding an operation.

Agricultural financing is also available from banks, including:

• CIBC Agriculture Loans and Lines of Credit
• BMO Agricultural Financing
• TD Agricultural Financing
• RBC RoyFarm Agriculture Mortgage
• Scotiabank Farm Mortgage Loan
• National Bank Agribusiness Financing

Eligible farmers may also obtain financing through the federal Canadian Agricultural Loans Act (CALA) Program. CALA loans are issued by participating banks, credit unions, and other approved financial institutions, while the federal government guarantees 95% of the lender’s eligible net loss. Borrowers must still apply through a participating lender and meet its lending requirements.

Under CALA, a farm operation can have up to $500,000 in outstanding program loans. The full $500,000 may be used to purchase farmland or construct or improve farm buildings, while loans for other eligible purposes, such as equipment and livestock, are limited to $350,000. These limits are combined, meaning a borrower cannot receive $500,000 for land plus another $350,000 for equipment under the program.

CALA may finance up to 90% of eligible costs for beginning farmers and up to 80% for existing farmers. This generally means a minimum equity contribution of 10% for beginning farmers and 20% for existing farmers. Eligibility does not guarantee approval, and the participating lender determines whether the borrower qualifies.

The $500,000 CALA limit may help finance a farm start-up, but it may not cover the full cost of purchasing land, buildings, equipment, livestock, and working capital. Beginning farmers may need to combine a CALA loan with personal equity, leased land or equipment, an operating line of credit, or other agricultural financing.

A home equity line of credit (HELOC), home equity loan, or personal loan may be an alternative when a traditional land loan is unavailable. However, the amount you can borrow depends on your home equity, income, credit, and existing debts.

If you own a home, you may be able to use a HELOC or home equity loan to purchase land. A HELOC provides revolving access to funds secured against your home, while a home equity loan generally provides a lump sum with scheduled repayments. These products may cover the full purchase price if you have enough available equity.

Many HELOCs allow interest-only minimum payments, which can keep initial payments lower. However, interest-only payments do not reduce the balance, and HELOC rates are generally variable. Using a HELOC also puts your existing home at risk if you cannot repay the debt.

A personal loan may be an option for less expensive land or a small financing gap. Because personal loans are usually unsecured, they generally have higher interest rates, shorter repayment periods, and lower borrowing limits than financing secured by real estate.

Seller financing, also known as vendor financing or a vendor take-back mortgage, is an arrangement in which the seller finances part or all of the land purchase. Instead of receiving the full purchase price at closing, the seller accepts a down payment and allows the buyer to repay the remaining balance over time, usually through regular payments with interest.

Seller financing may be helpful when a buyer cannot obtain enough financing from a bank or another land lender. For example, it may be an option for someone with a low credit score, limited income documentation, or a property that does not meet a traditional lender’s requirements. However, the seller sets the qualification requirements and may charge a higher interest rate or require a substantial down payment to compensate for the additional risk.

In a typical vendor take-back mortgage, ownership of the land transfers to the buyer at closing, while the seller registers a mortgage against the property as security for the unpaid balance. The buyer then makes loan payments according to the agreed repayment schedule. If the buyer fails to meet the terms of the agreement, the seller may take legal action to recover the outstanding debt or enforce the mortgage.

Seller financing can also be combined with financing from another lender. For example, suppose a buyer purchases land for $150,000 and a land lender agrees to provide $100,000. The buyer may be able to make a down payment and negotiate seller financing for some or all of the remaining amount. The primary lender must approve this arrangement, and the parties must determine which lender will have priority if the buyer defaults.

Although seller financing may reduce the need for conventional lender underwriting, it does not eliminate the need for proper documentation or closing costs. The agreement should clearly state the interest rate, payment schedule, repayment period, prepayment terms, fees, security, and consequences of default. Seller-financing rules and registration requirements vary by province or territory, so the buyer and seller should each obtain independent legal advice before completing the transaction.