Acreage Financing 101: Why You Can’t Use a Regular Mortgage to Buy Raw Land
One of the most common surprises for first-time land buyers in South Kansas City: you can’t finance raw land with a standard residential mortgage. Conventional 30-year mortgages are designed for improved properties — homes with a foundation, utilities, and a certificate of occupancy. Raw land doesn’t qualify, and the financing options that do exist work differently than what most buyers are used to.
This guide explains why land financing is different, what loan types are available, and how to structure a purchase so you’re not caught off guard at the closing table.
Why Banks Won’t Give You a Regular Mortgage for Land
A conventional mortgage is secured by the home and land together. Lenders assess the property’s value based on comparable home sales, and the home itself is the collateral. Raw land has no structure, which means no comparable home sales to anchor the appraisal, no immediate income-producing use, and significantly higher perceived risk for the lender. Because of this, Fannie Mae and Freddie Mac — the agencies that back most conventional mortgages — don’t purchase raw land loans. That pushes land financing into specialty products with different terms.
Raw Land Loans
Raw land loans are offered by local banks, credit unions, and some portfolio lenders. They typically require 20–50% down, carry higher interest rates than conventional mortgages (often 1–3% higher), and have shorter terms — commonly 5 to 15 years rather than 30. Monthly payments are higher as a result, but these loans allow you to purchase vacant acreage without an existing structure.
In the South Kansas City market, local and regional banks familiar with rural properties in Johnson and Miami Counties are often the best source for raw land loans. National banks and online lenders rarely offer them.
Construction-to-Permanent Loans
If you’re buying land with the intent to build, a construction-to-permanent loan can finance both the land purchase and the home construction in a single loan package. The loan starts as a construction loan during the building phase, then converts to a standard mortgage once the home is complete. This avoids the need for two separate closings and two sets of closing costs.
The catch: you need approved building plans, a licensed contractor, and a construction timeline before closing. This loan type works best for buyers who are ready to build — not for those who want to buy land now and build later.
Seller Financing
Some land sellers in the South KC market are willing to finance the purchase directly — the buyer makes payments to the seller rather than a bank. Terms are negotiable: down payment, interest rate, amortization period, and balloon provisions are all set by agreement between buyer and seller. Seller financing can be a flexible option when bank financing is difficult to secure, but buyers should have a real estate attorney review the contract terms before committing.
USDA Loans for Rural Properties
USDA Rural Development loans offer favorable terms — including zero down payment — for properties in eligible rural areas. Parts of Miami County and southern Johnson County may qualify. However, USDA loans are designed for homes, not raw land. If you’re purchasing an existing home on acreage in an eligible area, USDA financing is worth exploring. For vacant land purchases, USDA doesn’t apply.
What to Expect: Down Payments and Terms
Land financing requires more cash upfront and costs more per month than a comparable home mortgage. Expect 20–50% down for raw land, 15–25% for improved lots, interest rates 1–3% above conventional mortgage rates, and loan terms of 5–15 years. Plan your budget accordingly — the monthly payment on a land loan for a $200,000 parcel at 8% over 10 years is substantially higher than what you’d pay on a 30-year mortgage at 6.5% for the same amount.
Working with the Right Team
Land transactions require an agent who understands land-specific due diligence — zoning, easements, flood zones, utility access, and financing options that most residential agents don’t encounter regularly. The Chris Guerrero Group specializes in land and acreage transactions in Johnson and Miami Counties and can connect you with lenders who actively finance rural land purchases in this market.
Can you get a mortgage on raw land in Kansas?
Not a standard conventional mortgage. Fannie Mae and Freddie Mac don’t back raw land loans, so you’ll need a specialty land loan from a local bank or credit union. These typically require 20–50% down, carry interest rates 1–3% above conventional mortgages, and have shorter repayment terms of 5–15 years. Local and regional banks in the South Kansas City area are the best sources for these loans.
How much do you need to put down on a land loan?
Most raw land loans require 20–50% down, depending on the lender and the property. Improved lots with existing utilities may qualify for lower down payments in the 15–25% range. The higher down payment requirement reflects the increased risk lenders assign to land without an existing structure. Construction-to-permanent loans may have different down payment structures if you plan to build immediately.
What is a construction-to-permanent loan?
A construction-to-permanent loan finances both the land purchase and home construction in a single loan package. It starts as a construction loan during the building phase, then automatically converts to a standard mortgage once the home is complete. This avoids two separate closings and two sets of closing costs. You’ll need approved building plans, a licensed contractor, and a construction timeline before the lender will close.
Can you use a USDA loan to buy land in Miami County, KS?
USDA Rural Development loans can finance homes in eligible rural areas — and parts of Miami County may qualify. However, USDA loans are for improved properties with an existing home, not for raw land purchases. If you’re buying an existing home on acreage in a USDA-eligible area, this loan type offers favorable terms including zero down payment. For vacant land, you’ll need a different financing option.
Is seller financing available for land in South Kansas City?
Yes — some land sellers in Johnson and Miami Counties offer seller financing, where the buyer makes payments directly to the seller rather than a bank. Terms including down payment, interest rate, and repayment period are negotiated between buyer and seller. Seller financing can be a flexible alternative when bank financing is difficult to secure, but buyers should always have a real estate attorney review the contract before committing.
Part of our Land & Acreage Guide: This post is part of our comprehensive guide to buying land in South Kansas City. For pricing by area, financing options, due diligence checklists, and more, read the full guide: Land & Acreage in South Kansas City: The Complete Guide.
Leave a Reply