Land loans in Texas work differently from home mortgages: lenders charge higher interest rates, demand larger down payments, and offer shorter repayment terms because vacant acreage is harder to resell after a default than a house. How much you’ll put down and what rate you’ll pay depends mostly on how the lender classifies the property, with raw acreage often requiring 35% to 50% down and even fully developed lots rarely qualifying for less than 15% to 20%. Your credit profile, the property’s title history, and your plans for the land fill in the rest.
How Land Type Shapes Your Terms
The single biggest factor in your loan terms is how close the parcel is to being buildable. Lenders sort Texas land into three tiers.
Raw land has no infrastructure: no electricity at the property line, no water service, no road grading, often no cleared access. It is the highest-risk category because the value depends almost entirely on what someone might eventually do with it. Expect down payments of 35% to 50%, interest rates roughly between 7% and 10%, and loan terms rarely stretching past 10 to 15 years. Some banks won’t lend on raw land at all, which pushes buyers toward credit unions, farm credit lenders, or owner financing.
Unimproved land sits in the middle. The parcel might have a cleared entrance, a gravel road, or utilities running near the boundary, but it isn’t connected to water, sewer, or electric service. The Texas Real Estate Commission maintains a separate standard contract form for unimproved property, which signals how differently these sales are treated. Down payments usually fall in the 20% to 35% range, and rates run somewhat lower than raw land while staying above conventional mortgage rates.
Improved land is essentially shovel-ready, with water, electric, sewer, and paved road access already in place. Because the value is immediate and demonstrable, down payments can drop to 15% to 25%, and some credit unions will finance up to 80% of the appraised value or purchase price on qualifying Texas parcels. Terms can stretch to 15 or 20 years.
If you’re buying undeveloped land, lenders also look at whether you can afford the development costs on top of the loan. Drilling a well in Texas typically runs $9,000 to $20,000, a septic system with a drain field adds another $5,000 to $12,000, and extending electric service to a remote lot can push total infrastructure costs to $30,000 to $50,000 before you build anything. A realistic land-use plan with those estimates included strengthens your application.
What You’ll Need to Qualify
Land underwriting is more demanding than a standard home purchase. The lender scrutinizes both your personal finances and the physical characteristics of the parcel.
Credit and Income
Most lenders want a credit score of at least 680, and specialized agricultural lenders often set the bar at 700 or 720 for their best rates. Plan on providing two years of federal tax returns and recent pay stubs. Your debt-to-income ratio generally needs to stay below 43%, the federal qualified-mortgage ceiling, which many land lenders apply even though land loans sit outside conventional mortgage guidelines. Higher rates and larger down payments make the monthly obligation steep relative to the principal, so lower DTI gives you room to negotiate.
Survey and Appraisal
A professional boundary survey is non-negotiable. It identifies the exact property lines, any easements crossing the land, and encroachments from neighbors that could cloud title. Costs depend on acreage, terrain, and tree cover: a five-acre cleared lot might run $1,500, while a 20-acre wooded parcel in rough terrain can cost $4,000 to $6,000 or more. Don’t rely on an old survey from the seller; lenders want a current one, and the Texas Veterans Land Board requires its own specific survey standards for VLB-financed purchases.
You’ll also need a land appraisal from someone experienced with rural or agricultural valuations. Unlike a home appraisal, which leans on nearby home sales, a land appraisal compares your parcel against recent sales of similar acreage. If comparable sales are thin, the appraiser may factor in income-producing potential or development cost analysis, which makes local expertise important.
Application Forms and Land-Use Plan
Most lenders start with the Uniform Residential Loan Application (Fannie Mae Form 1003). Beyond that, expect to submit a land-use plan describing where you’d place future structures, driveways, and septic systems. The lender uses it to evaluate whether the property can actually support what you want to do with it. For agricultural land, the lender may also ask for a 1-D-1 Open-Space Appraisal application to verify the property’s tax classification and income potential.
Texas-Specific Issues That Can Sink a Deal
Three Texas quirks catch land buyers off guard more than any others. All three should be investigated before you sign a contract, not after.
Severed Mineral Rights
Texas has a long history of separating mineral rights from surface rights. A seller can convey the surface while a previous owner, sometimes generations back, retained the oil, gas, or mineral interests underneath. If you don’t investigate before closing, you could end up owning land where someone else has the legal right to access the subsurface and potentially disrupt your use of the property.
A standard title commitment will note mineral reservations as exceptions, but you need to read them carefully. Fannie Mae’s guidelines treat outstanding mineral rights as minor title impediments for conventional loans, provided they don’t materially alter the property’s contour or impair its usefulness for the intended purpose.1Fannie Mae. Title Exceptions and Impediments That language gives lenders room to approve loans on land with severed minerals, but it also means your title insurance may not fully protect you if a mineral rights holder later exercises drilling or access rights. Have your title company or attorney trace the mineral history, identify who holds the rights, and check for active leases before you commit.
Agricultural Rollback Taxes
Many Texas parcels carry an agricultural or open-space tax appraisal under Section 23.55 of the Texas Tax Code, which dramatically lowers the annual property tax bill. When that land is converted to a non-agricultural use, the county imposes rollback taxes covering the three years before the change.2State of Texas. Texas Tax Code 23.55 – Change of Use of Land The rollback equals the difference between the reduced agricultural tax the owner actually paid and the full market-value tax that would have applied in each of those three years. On sizable parcels, that gap can run tens of thousands of dollars. Properties under the older Subchapter C (1-d) classification also incur interest on the rollback amount.3Texas Comptroller. Agricultural, Timberland and Wildlife Management Use Special Appraisal
If you plan to keep ranching or farming, maintaining the exemption avoids the rollback entirely. If you plan to build a home, subdivide, or develop, negotiate who pays the rollback as part of your purchase contract. Sellers sometimes absorb it; just as often, the contract shifts it to the buyer.
Zoning and Deed Restrictions
Even after closing, your plans may be limited by zoning ordinances or private deed restrictions. Municipal zoning controls density and permitted uses within city limits and extraterritorial jurisdictions. Private deed restrictions, often imposed by a developer or prior owner, can limit everything from the type of structures you build to whether you can keep livestock. Deed restrictions are enforced through private lawsuits rather than city code enforcement. Confirm both the zoning classification and any recorded deed restrictions permit what you actually intend to do.
The Texas Veterans Land Board Option
If you have military service, the Texas Veterans Land Board runs a state program authorized under Chapter 161, Subchapter K of the Texas Natural Resources Code that offers below-market interest rates and a minimum down payment of just 5%.4Justia Law. Texas Natural Resources Code Title 7, Chapter 161 – Veterans Land Board It’s one of the most accessible land financing options in the state.
To qualify, you must be at least 18, a bona fide legal resident of Texas at the time of application, and fall into one of these categories:
- Active duty in any branch of the U.S. military.
- Veterans with at least 90 days of active duty service and an honorable, general, or medical discharge. Dishonorable discharges are ineligible, though other discharge types may qualify with a VA certificate of eligibility.
- Texas National Guard members.
- Reserve component members who have completed 20 qualifying years for retirement.
- Surviving spouses of veterans listed as missing in action or whose death was service-connected.
You’ll submit a Request for Certification (Form 41) and a Declaration of Eligibility (Form 42) to verify status before the loan proceeds.5Texas General Land Office. Certification of Eligibility Application The land must sit entirely within Texas, contain at least one usable acre excluding any portion under a public roadway, navigable waterway, or subject to frequent flooding, and have legal access to a public road.6Texas General Land Office. Land Loans The VLB sets its own maximum loan amount and interest rates, so check the GLO site for current figures before applying.
Owner Financing When a Bank Says No
When traditional financing falls through or the property doesn’t meet conventional lending standards, Texas buyers often turn to owner financing. The seller acts as the lender, and the buyer makes payments directly. This arrangement is common for smaller rural parcels, raw land, and buyers whose credit doesn’t qualify institutionally.
Many of these deals use a contract for deed (also called an executory contract), where the seller keeps legal title until the buyer makes all payments. That structure carries real risk. Because the seller holds title, the seller can potentially encumber the property with new liens even while you’re paying. If you default, the process to reclaim the property is faster and cheaper for the seller than a standard foreclosure.
Texas law provides protections that don’t exist in many other states. Under Chapter 5 of the Texas Property Code, a seller entering an executory contract must give you a current survey or plat, copies of all documents describing encumbrances or claims on title, and a detailed disclosure notice about the property’s condition, including whether it has water, sewer, and electric service.7State of Texas. Texas Property Code Chapter 5 – Conveyances The seller must maintain fee simple title free from liens during the contract period and provide an annual accounting statement each January showing amounts paid, remaining balance, and payments made to taxing authorities on your behalf.8State of Texas. Texas Property Code 5.062 – Executory Contract for Conveyance Sellers who fail to deliver the annual statement face liquidated damages of $250 per day if they conduct two or more such transactions in a 12-month period.
Even with those protections, a contract for deed is riskier than a traditional deed of trust. Get an independent title search before signing. Verify the seller actually holds clear title and that no outstanding liens exist. The few hundred dollars you spend can save you from losing both the land and every payment you’ve made.
Underwriting, Closing, and Costs
Once your application package is complete, it enters formal underwriting. A specialist reviews your financial profile against the appraised value, survey results, and intended use. This typically takes 30 to 60 days for Texas land loans, longer than a standard home purchase because environmental assessments, soil testing for septic suitability, or additional survey work may be required. The lender coordinates with a title company to confirm the property is free of liens, verify the legal description, and identify title exceptions.
Closing costs generally run 2% to 5% of the loan amount. The main components:
- Title insurance, which protects the lender (and optionally you) against title defects. On a $100,000 purchase, expect roughly $575 to $850.
- Loan origination fee, typically 0.5% to 1% of the loan amount.
- Recording fees paid to the county clerk, varying by county.
- Survey and appraisal fees, if not already paid during the application stage.
- Escrow deposits for property taxes, with an initial deposit collected at closing.
At closing, you sign the promissory note (your personal obligation to repay) and the deed of trust (the instrument that pledges the land as collateral). The deed of trust is recorded with the county clerk in the county where the land sits, which provides public notice of the lender’s security interest. Once recorded and funds are disbursed, you take legal possession.